Don’t let states hide more costs, says ECB official

Julian Harris
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GOVERNMENTS in the Eurozone should not be able to deduct certain investment spending from calculations that show the severity of their budget deficits, a senior European Central Bank (ECB) official said yesterday.

Joerg Asmussen insisted it would be “the wrong path” for countries to be permitted to exclude more items in order to meet fiscal targets.

His comments come as Brussels brings in two new regulations, starting from Thursday, aimed at more closely monitoring the fiscal health of euro area member states.

Known as the two-pack, the new rules will update the European Union’s Stability and Growth pact. The pact already allows some fiscal flexibility.

Asmussen said that authorities should not “tinker” further with the pact to allow countries more spending freedom.

The 46-year-old German also voiced caution over the prospect of negative interest rates, saying the ECB should tread cautiously on the idea, which would mean the bank charging commercial lenders for holding their money overnight.

ECB President Mario Draghi has said the bank was “technically ready to do this”.

“Some see the discussion very openly, I see it less openly,” Asmussen said.

“Our monetary policy is expansive and will remain so as long as necessary,” he added. “But to keep rates low for too long would create new risks.”

Such a move could encourage banks to lend out money to the real economy rather than hold it at the ECB, though it could also have implications for banks' own operations and for funding and bond markets.