European Central Bank president Jean-Claude Trichet has said that harmonising tax policy is inappropriate as long as EU governments continue to have different levels of spending.

Addressing the Economic and Monetary Affairs Committee of the European Parliament yesterday, he said that the tax policies of any member-state should generally match its spending policies. "We know it falls to the responsibility of the executive branches who have veto rights . . . There are 20 per cent differences in GDP between the highest and lowest spenders in Europe. Then how can there be a harmonious tax regime?"

Mr Trichet was responding to a question from Eoin Ryan MEP on the specific issue of harmonising the tax base for corporation tax.

Replying to a question on interest rates, Mr Trichet said that he did not consider it necessary to have a pause in interest rate rises, intimating that interest rates remained low.

"We are still in the accommodative side. We'll act in a firm and timely manner and do whatever is necessary to counteract inflation."

He said that the ECB's last round of interest rate rises, which brought its main refinancing rate to 4.75 per cent in 2001, had turned out to be justified by subsequently low inflation. "The past is speaking very favourably of what we do responding to inflation," he added.