FRANKFURT, 12 September 2003 — The European Central Bank yesterday took a hard line over the poor state of public finances in many euro-zone countries, launching a multi-pronged attack against loose budget policies in some member states. The ECB took aim particularly at the single currency area’s economic heavyweights, France and Germany.

The euro-zone central bank said that their repeated breaches of the EU’s budget rules was putting the credibility of the entire European project at stake. The European Stability and Growth Pact, which stipulates that a euro-zone country’s public deficit must not amount to more than 3.0 percent of its gross domestic product (GDP), was “a decisive and central element of European Monetary Union” and debate about softening the rules was putting the pact at stake, the ECB’s chief economist Otmar Issing said in a newspaper interview.

Meanwhile, the ECB wrote in its regular monthly bulletin that “recent fiscal developments in the euro area are of great concern,” with “growing evidence that most countries will miss their budgetary targets for 2003 by a significant amount.”

And the ECB’s next president, Bank of France governor Jean-Claude Trichet, told the EU’s committee for economic and monetary affairs in Brussels that in the long run, soaring deficits would actually undermine the euro zone’s ability to grow and create jobs.

The flurry of comments comes just a day before of an informal two-day meeting of EU finance ministers in Italy where the stability pact is likely to be hotly debated as governments search for a way out of their current economic impasse.

Both Germany and France were in breach of the 3.0-percent rule in 2002, have said they will remain so again this year and run the risk of excessive deficits again next year. Other countries, such as Italy and Portugal, also came under fire from the ECB in its monthly report for failing to take sufficient measures to get their finances in order.

Berlin and Paris are pleading for the budget rules to be bent, arguing that additional belt-tightening at a time of near-zero growth might push their economies deeper into recession. On Wednesday, German Chancellor Gerhard Schroeder had said the budget rules should not be stuck to if they strangled growth.

And in Paris yesterday, French Industry Minister Nicole Fontaine had slammed the stability pact as “too rigid.” But the ECB is having none of it.