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ECB's Trichet says fiscal rules must be kept

European policymakers must not tear up the rule books when launching emergency economic rescue packages, European Central Bank President Jean-Claude Trichet said in an interview published in the Financial Times.

 

“We would destroy confidence if we blew up the stability and growth pact,” he said. The pact sets rules on public deficits and debt levels.

Fiscal indiscipline could threaten already fragile economic confidence and increase the nervousness of capital markets about governments' funding needs, Trichet told the newspaper.

European Union leaders on Friday backed plans for a stimulus package worth around €200 billion ($265 billion) in response to the worst financial crisis in 80 years.

Policymakers had a duty “to eliminate as completely as possible all the inbuilt elements in global finance that are amplifying the booms and the busts,” Trichet said.

Trichet also said the ECB was not currently considering buying government debt.

“Today, we will certainly not consider that it will be appropriate at all,” he said.

Buying back government debt is seen as one of the ways for central banks to combat deflation and recession once interest rates head close to zero.

The ECB's benchmark interest rate is 2.5%. (Reuters)