WASHINGTON - International Monetary Fund chief Rodrigo Rato Thursday launched a veiled attack on reforms to the eurozone's enfeebled budget rules that were rammed through by France and Germany.
Rato, who in his previous job of Spanish finance minister was a staunch defender of the European Union's Stability and Growth Pact, said the IMF would look at the reforms "with great interest".
"We believe and I believe that the Stability and Growth Pact has served Europe well," he told a news conference on the eve of a meeting of finance ministers from the powerful Group of Seven nations.
"In a very difficult moment of very low growth in many countries, the pact has been able to make a contribution ... to avoid an undesirable increase in public deficits in Europe," he said.
The reformed pact "should guarantee that all countries are treated in the same way and in a transparent way", Rato added, echoing criticism of the way in which the pact's key deficit stricture was suspended for France and Germany.
At summit talks last month, EU leaders endorsed reforms to the 1997 pact, which enshrines the rules underpinning Europe's single currency.
Eurozone heavyweights France and Germany fought hardest to push the changes through, having struggled for years to meet its headline limit requiring budget deficits be kept below 3.0 percent of output.
The European Central Bank, the guardian of the euro, expressed "serious concern" about the planned reforms, fearful they will encourage fiscal profligacy.
Rato said that in the new-look pact, eurozone governments should make reduction of their national debts a priority to get their healthcare and pensions systems in shape for a rapidly ageing population.
"That should be the aim of any agreement between the European governments," he said.
"One thing is clear: Europe needs to have better conditions for work with more people working, and working longer. The impediments to people finding work, and to working longer, should be removed," he added.
In its twice-yearly World Economic Outlook released Wednesday, the IMF slashed its 2005 growth forecast for the 12-nation eurozone to 1.6 percent owing to the impact of high oil prices and global economic uncertainty.
The report renewed calls for EU nations to revitalise their economies through long-term reforms in key areas such as labour markets.
IMF chief economist Raghuram Rajan said the eurozone's potential growth rate was now down to just 2.0 percent a year. "At those rates, Europe cannot afford its welfare state," he said.
Rato added: "European governments should face the facts that are needed to make that growth potential bigger."
The IMF report also warned against any further dilution of the stability pact, arguing that "a strong fiscal framework clearly remains an essential part of monetary union in Europe."
04/14/2005 16:02 GMT