Richard North, 07/09/2004  

Following the unhealthy dose of fat-saturated fudge dished out on the growth and stability pact by the commission last week the Bundesbank has today made it known that it is a very unhappy bunny – very much a case of "fudge-u-don't-like".

According to AFP, it has "lashed out" at the commission's proposals, declaring that the changes would weaken the Stability and Growth Pact and lead to a worsening of monetary policy conditions in the euro area. "The Bundesbank is of the opinion that the proposed changes will not strengthen but weaken the stability pact", its spokesman intoned.

And just in case there was any room for doubt about the depths of the Bank's unhappy bunniness, it added its own hint of what doom might follow: "That would lead to a deterioration of the conditions for monetary policy in the single currency area". Furthermore – and here is the iron fist inside.. the steel gauntlet - if governments pursued a policy of loose purse strings in Europe, "the European Central Bank might be compelled to react by raising its key interest rates". Ouch!

"Healthy state finances are an important pre-condition for the ECB to guarantee price stability in the long term via relatively low interest rates", the Bundesbank said – through gritted teeth, no doubt. The proposed changes "will reduce the incentive for eurozone countries to pursue solid budget policies and, at the same time, send a wrong signal to those countries that have not yet adopted the single currency".

Finishing off this lesson in basic economics, the Bank added its final condemnation. The proposals would "make the rules more complicated and complex, thereby impairing its (the pact's) ability to be implemented". That's telling 'em!

But gone are the days when the all-powerful Bundesbank ruled the roost. The question is, therefore, whether the commission – or the member states – will take a blind bit of notice. Answers on a postcard please…

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