The European Central Bank hit out on Thursday at eurozone countries which are dragging their feet on planned budget reforms, urging them to stick to an agreed deadline. European Union finance ministers promised in April to balance their budgets by 2010, but since then France has pushed back its target to 2012 and Italy has said it plans to slow the pace of deficit cuts.
"The Governing Council notes with concern the pressures emerging in a number of countries to relax previous fiscal consolidation targets," ECB President Jean-Claude Trichet said at his monthly news conference on Thursday.
He avoided specific reference to Italy and France, whose new president, Nicolas Sarkozy, is due to explain his budget plans to eurozone finance ministers in Brussels on Monday, but said all budget laggards should take note. "Our message is a message which is absolutely for all countries but in particular for those where we think there might be a risk of not respecting the commitments that have been taken," Trichet said, after the ECB left rates at 4 percent.
ECB Executive Board member Lorenzo Bini Smaghi said countries could regret not taking advantage of the current sweet spot in the eurozone economy, which is expected to grow at about 2.6 percent this year, above its recent trend.
"The risk is that when the recovery phase ends, deficits will continue to grow, exceeding 3 percent of GDP," he said in a speech to the Italian Cultural Institute in Frankfurt.
Under budget rules, countries are supposed to cut deficits each year by the equivalent of 0.5 percent of gross domestic product, but the EU has no power to force countries to make cuts as long as deficits remain below a ceiling of 3 percent of GDP.
Sarkozy is expected to argue on Monday that France is entitled to more time to fix its budget because it will be implementing structural reforms to boost growth and flexibility. Trichet declined to comment, saying he did not want to pre-empt the Eurogroup discussions.