Future European Central Bank president Mr Jean-Claude Trichet has told European deputies that the record low level of euro zone interest rates is not stressed enough, Le Mondereported today.
In written responses to European deputies, Mr Trichet also said that making changes to the Stability and Growth Pact, designed to underpin the euro currency, would be dangerous for the credibility of the 12-nation monetary union.
The ECB's key refinancing rate is at a record low of 2.0 per cent.
"The fact that interest rates in the euro zone are at their lowest level for half a century...is not stressed enough," Mr Trichet said in written responses to European deputies, Le Monde reported.
And with Germany and France set in 2003 to again breach the three percent cap on budget deficits allowed by the pact, Mr Trichet warned against ever higher deficits. "It would be a mistake to think that during difficult times there is necessarily an advantage, in terms of growth, in increasing deficits," Le Monde, whose Thursday dated edition is released in Paris today, quoted Mr Trichet as saying.
"When spending and deficits are at a high level (our citizens) have the feeling that public spending and deficits are going in the wrong direction, their mistrust as consumers and investors will cancel out...the positive 'Keynesian' effects expected from such spending.
"In the final analysis, respecting the stability pact boosts confidence and therefore growth," Mr Trichet said.
Work by the European Commission, the European Union's executive body, showed that the three per cent deficit level allowed by the stability pact, gave members the necessary flexibility to take account of economic fluctuations, the future ECB president added.
The comments by Frenchman Mr Trichet came as a rebuke to his homeland, the second biggest euro zone economy, whose government has acknowledged that its deficit will hit 4.0 per cent in 2003, the second year in a row it will have breached the pact's cap.
Prime Minister Mr Jean-Pierre Raffarin has set growth as his priority, not cutting deficits, and is also under pressure from President Mr Jacques Chirac to cut taxes to stimulate businesses and reduce mounting unemployment.