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IMF pushes EU to simplify "complicated" budget rules

The European Union must find ways to simplify its "excessively complicated" budget rules that are rarely met by struggling economies and discourage investment, the IMF said on Thursday.

LUXEMBOURG: IMF head Christine Lagarde urged the European Union on Tuesday to simplify its "excessively complicated" budget rules that are rarely met by struggling economies and discourage investment.

The criticism, contained in an IMF report on the state of the eurozone economy, comes amid a renewed debate over the EU's Stability Pact, a strict set of fiscal rules requiring member states to keep their deficits in check.

"There is a certain complexity on the one hand, and a divergence of interpretation," Lagarde told journalists at the end of the meeting with eurozone finance ministers where she presented the report.

The IMF recommendation comes days after Germany's economy minister suggested struggling countries could be allowed more latitude in implementing the strict rules, but the idea was swiftly swept aside by Chancellor Angela Merkel.

The IMF report warned that the pact "has become excessively complicated with multiple objectives and targets."

"Compliance with fiscal targets has been poor, reflecting in part weak enforcement mechanisms. And there is a worry that the framework discourages public investment," it said.

Arriving at the meeting, finance ministers from France and Italy denied any intention of calling for changes in the pact, despite widespread praise for the idea by officials in Paris and Rome.

Under the rules, public deficits -- the shortfall between government income and spending -- should not exceed 3.0 per cent of annual gross domestic product.

Accumulated debt -- the sum of all those annual deficits -- is supposed to be kept at 60 per cent of GDP.

Lagarde said these limits were set during a period of high growth "that has nothing to do with today", though she added that any change to the limits "would not be done tomorrow morning".

Economics Affairs Commissioner Olli Rehn, the architect of the EU's austerity based crisis-fighting strategy, said he accepted some of the IMF criticsm, but that the best way forward was to focus on "the existing toolbox".

"Concerning our fiscal rules... I would simply say that if they have become more complex is that they have become smarter," he added.

Overall, the IMF said that while recovery in the eurozone is "taking hold" it was "neither robust or nor sufficiently strong" with unemployment still high and inflation "worryingly low".

Lagarde said the fund welcomed the unprecedented decision by the European Central Bank earlier this month to cut a key rate to negative level, but urged for even more aggressive stimulus measures if inflation remained stubbornly low.

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