CORRECTED – Trichet says EU fiscal reform too weak for euro zone

(Corrects van Rompuy’s title)

* Trichet says did not subscribe to all elements of plan

* Fiscal reform not ambitious enough for euro zone – Trichet

By Daniel Flynn and Rachel Armstrong

GYEONGJU, South Korea, Oct 23 (BestGrowthStock) – European Central
Bank President President Jean-Claude Trichet said on Saturday
that new European Union fiscal rules pushed by France and
Germany were too weak to safeguard the euro zone.

EU finance ministers agreed on Monday to toughen the bloc’s
budget rules to prevent future sovereign debt crises after an
agreement struck in France between President Nicolas Sarkozy and
German Chancellor Angela Merkel, which diluted initial plans.

German magazine Spiegel reported that Trichet had warned
French and German officials at Monday’s meeting of European
Council President Herman van Rompuy’s taskforce on fiscal
reform, that their actions could threaten the coherence of the
euro zone.

However, Trichet said he had simply stuck to the ECB’s
position that semi-automatic sanctions were required to ensure
the efficacy of any fiscal pact for the 16-nation currency bloc.

“All that I have said … was that I did not subscribe to
all elements of the report by the taskforce,” said Trichet, who
was himself a member of Van Rompuy’s group.

Trichet said there was a huge difference between measures
which were appropriate for the 27-nation European Union, and
those which would bring stability to the 16-country euro zone,
which shares monetary policy and institutions.

“The proposal which was agreed by the Commission and the Van
Rompuy taskforce report is only appropriate for the 27. For the
16, we think that it could be more ambitious,” Trichet said.

The ECB had originally called for semi-automatic punishments
for countries running up large deficits, including stopping
access to European funding and aid.

Under the proposals approved on Monday rule breakers would
only face sanctions after six months after being warned, and a
majority of EU states could block any financial penalties being
imposed.

Germany’s Merkel accepted French demands to give politicians
more control over penalties, in exchange for Sarkozy backing
German calls to amend EU treaties in the future to strip
persistent deficit sinners of voting rights and push for an
orderly default mechanism.

It will now take a political decision by a qualified
majority of euro zone governments to start disciplinary action
against any state with an excessive deficit or debt level, and a
majority of countries can still block any financial sanction.

ECB Vice-President Vitor Constancio already told reporters
in Frankfurt on Wednesday that the central bank wanted tougher
rules, a sentiment matched by fellow ECB board member — and one
of the architects of Europe’s original fiscal rules — Juergen
Stark. [ID:nFLAKLE6D6] [ID:nFLAKLE6D7]
(Reporting by Daniel Flynn and Rachel Armstrong; Editing by Ed
Lane)

CORRECTED – Trichet says EU fiscal reform too weak for euro zone