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EU countries should be monitored by independent national watchdogs in a bid to halt the practice of vote-hungry governments providing "unreliable" deficit figures, a Swedish central banker said on Thursday. Deputy central bank governor Eva Srejber said such bodies should be modelled on the US Congressional Budget Office and audit adherence to the deficit ceiling of 3 percent of gross domestic product, set by the European Union's Stability Pact which underpins the euro.
Germany is expected to break the 3 percent limit for the fourth year running in 2005. Italy is likely to exceed it in 2005 and so is France. The countries argue they need to spend more to boost sluggish economic growth.
Greece has bust the EU limit every year since 2000, and recently revised up its budget deficit numbers very sharply, sparking charges that the action was politically motivated by a new government.
Srejber, whose country voted against joining the euro last year, said the appointment of national watchdogs would supplement current monitoring from Brussels.
"Such an arrangement would avoid having unreliable deficit figures before elections, only to 'discover' the real state of accounts after the vote - such as has been the case in Portugal, France, Germany, and most spectacularly in Greece recently," she said in a speech delivered in Vienna.
"Incorrect facts are more or less deliberately sent to the Commission ahead of sensitive elections," she said.
Her comments were echoed by European Central Bank President Jean-Claude Trichet who said in Palermo, Italy on Thursday that "recent incidents" have demonstrated that public finance data "must not be susceptible to political and electoral cycles".
"It is very important to stress that our work depends crucially on the reliability ... of the statistical data that we are getting," Trichet told the Organisation for Economic Co-operation and Development (OECD) conference on statistics.
EXPLOITATION: German Chancellor Gerhard Schroeder and Italian Prime Minister Silvio Berlusconi have called for the relaxation of the EU's strict budget rules to encourage stronger growth.
"Instead of (Germany's) leadership towards clear objectives we have recently seen the opposite - the political exploitation of the gap between the national and European level," Srejber said, adding that Germany had set a bad example for some of the larger new member states. "The requirements of the Pact are blamed on heartless 'accountants in Brussels', and when a majority puts narrow national political interests first the agreed rules become moot - 'peer pressure' becomes 'peer protection'," she said.
"Perhaps the solution to regain credibility is neither to water down the Pact, nor to impose even stricter rules centrally," Srejber said.
"The solution is perhaps ... to complement the European level with national frameworks in the respective European nations so that they come to internalise the need to balance their budget over the cycle and to ensure that the same transparency exists on the fiscal side as on the monetary side."
Srejber said an economic upturn in the eurozone and in new EU states aspiring to adopt the euro would not automatically solve the problem of fiscal deficits.
Structural changes from higher productivity via information technology, globalisation and EU enlargement, would mean more unemployment as old industries are rapidly replaced, she said.
But the recent economic downturn in the eurozone never led to a sharp rise in unemployment or loss of jobs, so the upturn was also less likely to lead to rapid job creation.
"Both factors create new incentives for fiscal policy to focus more on short-term job creation schemes and less on long-term fiscal soundness. So from this perspective, too, the hope that the recovery alone will 'fix' the European deficit problem might be too optimistic."

Copyright Reuters, 2004

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