FRANKFURT, July 25 - European Central Bank Governing Council member Nicholas Garganas was quoted on Friday as saying a softening of European Union budget rules could have consequences for ECB policy and for the euro's exchange rate. "Any softening of the rules (in the Stability and Growth Pact) will have consequences -- could have consequences -- for interest rates. And it may be the reason for a weaker euro," Garganas was quoted by Financial Times Deutschland. The ECB views the Stability Pact that forces governments to close budget gaps over a fixed number of years as a cornerstone supporting the euro and its policy to fight inflation.
But governments in several euro zone countries struggle to meet the Pact's strict limits as the sluggish economy saps their revenues through lower taxes while at the same time boosting social security spending, resulting in larger budget deficits.//