PARIS (MNI) – The EU’s fiscal Stability Pact must be reinforced and
eventually modified to ensure greater budget responsibility within the
Eurozone, German Finance Minister Wolfgang Schaeuble said in an
interview published Wednesday.

Ahead of today’s Franco-German financial summit here, the minister
told the French business daily Les Echos that deficit reduction would
not jeopardize economic growth in the short term and would stimulate
activity over the longer term.

Schaeuble declined to “speculate” on the results of bank stress
tests to be released Friday. In countries where banks are
under-capitalized and unable to raise enough funds on the market,
governments should be able to draw on the EU’s new stability facility,
he said. “Of course, banks will not have direct access,” he added.

The minister acknowledged “a certain scepticism” toward changes in
the Stability Pact, since the process is long and complicated.

“However, if we consider that we cannot limit ourselves to
financial measures, but must also aim for non-financial instruments,
like the temporary loss of voting rights, to guarantee that member
states respect the Pact, then modifications of the treaties are
necessary,” he said.

“We agree that warnings in case of dangerous trends should be
launched earlier, that we need a more effective surveillance procedure,
and that we must expand the tool box to include European funds in the
reflection,” he continued. “Whoever does not abide by the common rules
runs the risk of disadvantages in the use of European funds.”

Today’s discussions with French Finance Minister Christine Lagarde
will focus on ways to strengthen the Stability Pact and on a joint
position on reinforcing economic governance within the EU to submit to
the task force headed by European Council President Herman Van Rompuy,
Schaeuble explained.

The minister defended his government’s austerity program against
critics who argue for more support of domestic demand: “When you know
how the German population behaves, the reduction in our public deficits,
which we are doing, is the most important factor to reinforce domestic
demand.”

“The Germans are worried when monetary stability no longer appears
guaranteed,” he explained. “They are very concerned to know whether
deficits are under control. By reducing them in a moderate way, we are
battling the feeling of uncertainty in the population and we thus
support demand.”

–Paris newsroom +331 4271 5540; e-mail: stephen@marketnews.com

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