Bank of England Governor Mervyn King criticized EU leaders for loosening the fiscal rules that underpin the value of the euro, saying restrictions on government spending in the region lack "discipline."
EU leaders on Wednesday agreed to allow finance ministers to permit deficits over 3 percent of GDP in some cases. The rules permit finance ministers to consider "relevant factors" such as slower growth or Germany's costs to rebuild its ex-communist east.
"The finance ministers have driven a coach and horses through the stability and growth pact," King told a parliamentary committee in London on Thursday. "My central bank colleagues in Europe are seriously concerned; indeed, I think dismayed would be a better word."
The European Central Bank (ECB) has said deficits may push up inflation and interest rates. Standard & Poor's has warned the easier constraints may lead to bigger deficits, lower credit ratings and higher borrowing costs for all EU nations.
Speaking in Parliament later on Thursday, British Prime Minister Tony Blair defended the measures and said his country wanted more changes to allow further flexibility in the rules.
"I do think that the greater flexibility in the stability and growth pact that was agreed makes sense," Blair said in response to questions in the House of Commons. "You have to have the right set of rules. There are changes that we want to see to the stability and growth pact."
King said that strict rules are needed to assure the stability of the euro and that nations using the currency need to exercise "collective fiscal discipline."
"Whatever word you use to describe these changes to the pact, it isn't discipline," King told the Treasury Committee of the House of Commons.
On Wednesday, Luxembourg Prime Minister Jean-Claude Juncker said the EU may allow member nations to adopt the euro without adhering to a limit on government budget deficits.
King's comments echo European Central Bank policy makers, who have said interest rates may need to be boosted to compensate for the relaxation of fiscal policy. Nout Wellink, one of 18 ECB policy makers and head of the Dutch central bank, said on Wednesday the changes will make it more difficult to predict budget deficits.
Shortfalls may become "bigger and less compatible with monetary policy and eventually lead to less growth and higher interest rates," he said.
MULTIFACETED: A task force has analyzed possible scenarios and created responses to assist domestic industries in dealing with US tariffs, the economics minister said The Executive Yuan is tomorrow to announce countermeasures to US President Donald Trump’s planned reciprocal tariffs, although the details of the plan would not be made public until Monday next week, Minister of Economic Affairs J.W. Kuo (郭智輝) said yesterday. The Cabinet established an economic and trade task force in November last year to deal with US trade and tariff related issues, Kuo told reporters outside the legislature in Taipei. The task force has been analyzing and evaluating all kinds of scenarios to identify suitable responses and determine how best to assist domestic industries in managing the effects of Trump’s tariffs, he
TIGHT-LIPPED: UMC said it had no merger plans at the moment, after Nikkei Asia reported that the firm and GlobalFoundries were considering restarting merger talks United Microelectronics Corp (UMC, 聯電), the world’s No. 4 contract chipmaker, yesterday launched a new US$5 billion 12-inch chip factory in Singapore as part of its latest effort to diversify its manufacturing footprint amid growing geopolitical risks. The new factory, adjacent to UMC’s existing Singapore fab in the Pasir Res Wafer Fab Park, is scheduled to enter volume production next year, utilizing mature 22-nanometer and 28-nanometer process technologies, UMC said in a statement. The company plans to invest US$5 billion during the first phase of the new fab, which would have an installed capacity of 30,000 12-inch wafers per month, it said. The
Taiwan’s official purchasing managers’ index (PMI) last month rose 0.2 percentage points to 54.2, in a second consecutive month of expansion, thanks to front-loading demand intended to avoid potential US tariff hikes, the Chung-Hua Institution for Economic Research (CIER, 中華經濟研究院) said yesterday. While short-term demand appeared robust, uncertainties rose due to US President Donald Trump’s unpredictable trade policy, CIER president Lien Hsien-ming (連賢明) told a news conference in Taipei. Taiwan’s economy this year would be characterized by high-level fluctuations and the volatility would be wilder than most expect, Lien said Demand for electronics, particularly semiconductors, continues to benefit from US technology giants’ effort
‘SWASTICAR’: Tesla CEO Elon Musk’s close association with Donald Trump has prompted opponents to brand him a ‘Nazi’ and resulted in a dramatic drop in sales Demonstrators descended on Tesla Inc dealerships across the US, and in Europe and Canada on Saturday to protest company chief Elon Musk, who has amassed extraordinary power as a top adviser to US President Donald Trump. Waving signs with messages such as “Musk is stealing our money” and “Reclaim our country,” the protests largely took place peacefully following fiery episodes of vandalism on Tesla vehicles, dealerships and other facilities in recent weeks that US officials have denounced as terrorism. Hundreds rallied on Saturday outside the Tesla dealership in Manhattan. Some blasted Musk, the world’s richest man, while others demanded the shuttering of his