May 26, 2002	Sunday	Rabi-ul-Awwal 13,1423

WARSAW, May 25: Bundesbank President Ernst Welteke warned European Union candidates on Friday that political attacks on independent central banks risked derailing their bid to join the bloc.

Welteke, a member of the European Central Bank’s policy-making council, said central bank independence would be a key criterion when the ECB reviews the fitness of candidates to join the EU and later adopt the euro.

His warning was primarily directed at Poland, the largest of 10 countries seeking to join the EU in 2004, where parliament on Friday gave preliminary backing to proposals which would compel the central bank to cut interest rates.

“If Poland wants to become a member of the European Union, then the central bank has to be independent — there is no question about it,” Welteke told a news conference in the Polish capital Warsaw.

“If the Polish central bank is not in our opinion an independent central bank, then we will put that down in our convergence report.”

Welteke said the independence of the ECB, enshrined in the Maastricht Treaty, and before it of the German Bundesbank, was a precondition for delivering low inflation and sustained growth.

Although the ECB has no formal say in choosing which of the mainly eastern European candidates can join the EU, Welteke said its opinion would play a crucial role when European leaders take the decision to accept new members.

“If we...put in our convergence report doubts about central banks in accession countries, it would be difficult to convince people in the European Union, and in European monetary union, that these countries should join,” he said.

In a later interview with Reuters, he added: “Politicians in the EU...have to be elected, and when they get signs that something is not in line with the Maastricht criteria it will become difficult for them to overrule such a judgment.

“The voters in the European Union...have also to be convinced that it is an advantage for them that Poland, Latvia, Estonia and all the other accession countries join,” he said.

Poland’s policy conflict pits an expansionist left-wing government seeking to drag the country out of its worst economic slowdown in a decade against a hawkish central bank headed by free-marketeer Leszek Balcerowicz.

The political threat to the central bank deepened on Friday when parliament backed proposals which would require it to consider jobs and growth, not just prices, in setting rates.

The proposals, which were referred to committee, also foresee expanding the rate-setting Monetary Policy Council (MPC) so that it can be packed with interest rate doves.

Some politicians say boosting the size of the MPC would not violate central bank independence, but Welteke disagreed.

“It is not directly a concern when the size of the committee is increased,” Welteke said. “The reason is the problem.”

He said it was important for stability-oriented monetary policies to be backed by sound fiscal policy, which should seek to balance the budget over the course of the economic cycle.

That is a far cry from the situation in Poland, which expects a fiscal deficit of five per cent of gross domestic product this year and is unlikely to reduce that shortfall over the next few years.

Welteke noted that, while Poland’s national debt was not yet near the Maastricht treaty ceiling of 60 per cent of GDP, it would be hard to kick the borrowing habit.—Reuters