The European Central Bank today expressed serious concern about proposed reforms to the European Union Stability and Growth Pact that were announced over the weekend.
'The Governing Council of the ECB is seriously concerned about the proposed changes to the Stability and Growth Pact,' the institution said in a statement.
'It must be avoided that changes in the corrective arm undermine confidence in the fiscal framework of the European Union and the sustainability of public finances in the euro area member states,' it said.
The ECB, who had warned against any watering down of the pact, made no mention of moving its key rates.
However, the German central bank, the Bundesbank, issued its own statement saying it was deeply concerned about the easing of the rules under the pact.
It said that budget discipline was an important condition for the European Central Bank to be able to ensure lasting price stability while maintaining relatively low interest rates.
EU finance ministers reached an agreement late last night on how to reform the Stability and Growth Pact, giving governments more leeway when their deficits surge.
Countries in the euro zone will still be expected to keep their budget deficits under 3% of GDP, but will be able to exceed that limit in special circumstances.
The deal favours France and Germany, which have been in breach of the pact for three years and have been demanding extra flexibility in their budgets.
The last-minute agreement was reached in Brussels ahead of a summit that will begin on Wednesday when EU leaders will gather to renew their budget rules.
Luxembourg Prime Minister Jean-Claude Juncker, whose country holds the EU's presidency, said: 'I am satisfied with the agreement, the fundamental rules have not been changed'.
Since negotiations began in September, pressure has been building on the ministers to thrash out a deal on reforming the Stability and Growth Pact that strikes the right balance between budgetary rigour and fiscal flexibility.
Emerging from 12 hours of negotiations, Juncker said that the pact's two key rules - that public deficits should not exceed 3% of GDP and public debt should not surpass 60% of GDP - were 'neither in question nor threatened' by the agreement.
The deal also allows countries more time to rein in their deficits when they overshoot the 3% limit and it requires the European Commission to take into account extraordinary circumstances when judging a member's deficit.
A major stumbling block to a deal was removed late on Sunday after euro zone finance ministers agreed to exclude the cost of German reunification in the calculation of deficits.
The 1997 budget pact was all but suspended in November 2003 when EU heavyweights France and Germany were let off the hook despite repeatedly breaching the 3% rule.
The European Commission, which polices deficits, voiced satisfaction with the outcome of the marathon talks with EU economic affairs commissioner Joaquin Almunia saying he had a 'very positive view of the final result'.