BRUSSELS - Undue weakening of eurozone budget rules could affect the European Central Bank`s monetary policy, market interest rates and the value of the euro, ECB chief Jean-Claude Trichet warned on Monday.
Trichet said that any weakening of the European Union`s Stability and Growth Pact might trigger a negative reaction in financial markets and would also affect the "environment" for ECB rate decisions.
"Our life will be totally different if the result (of ministerial talks to redraft the pact) is a good result or if it is a bad result. Our responsibility will be exerted in a different environment," he told the economic and monetary affairs committee of the European Parliament.
Trichet also warned that financial markets might react if the pact, which limits a eurozone`s public deficit to a maximum of 3.0 percent of output, were relaxed markedly.
Financial penalties against countries breaching the rules, notably France and Germany, have been effectively suspended by EU ministers.
Trichet said that so far the exchange rate of the euro and European capital markets had scarcely been affected by an increase of public deficits in several eurozone countries or by the debate about a reinterpretation of the pact.
However, the ECB chief added that he wanted to draw attention to the fact that financial markets could accumulate tension and then give expression to them.
03/14/2005 16:07 GMT