European governments must press ahead with deficit cuts to restore investor confidence even if it means economic growth suffers, European Central Bank Governing Council member Christian Noyer said on Monday.
Deficits, far from protecting growth, threaten and compromise it because they undermine confidence, the Governor of the Bank of France said. The sustainability of public finances everywhere must be quickly and clearly re-established ... notably in Europe.
He urged euro zone states to press ahead with reductions to their public spending, to cut government deficits below the EU ceiling of 3 percent of GDP by 2013, even if it means growth would be less than forecast.
The euro is a shared asset: its management cannot permit deviations from the rules of the game, laid out in ... the Stability and Growth Pact, Noyer said.
He said monetary and financial conditions in the euro zone remained very favourable to growth but he acknowledged that European nations were experiencing mixed economic conditions, in contrast to robust recovery in major emerging economies.
In France, the return to growth remained very fragile, he said in a letter of introduction to the Bank's annual report.
In the euro zone as a whole, Noyer said inflationary expectations had remained roughly stable throughout the financial crisis, protecting the bloc from deflationary risks.
In addition to deficit cuts, he urged European governments to press ahead with structural reforms to ensure the long-term viability of their finances, as well as measures to promote greater economic competitiveness and productivity. (Editing by Susan Fenton)