FRANKFURT (Reuters) - Few structural reforms have a short-term fiscal cost so European authorities should be more selective when granting governments leeway over budget rules to foster long-term changes, the European Central Bank said on Monday.
The European Commission gives governments some flexibility in meeting budget limits if they use the extra spending to carry out structural reforms fostering long-term growth.
It even broadened the scope of the exemption this year to kick-start stalled reform efforts. France got two more years to cut its budget deficit, partly because of a commitment to reforms, while Italy and Belgium both avoided an excessive deficit procedure because of reform plans.
But an ECB paper, due to be part of its larger Economic Bulletin due out on Thursday, challenged this approach.
"Since only a small set of structural reforms might have short-term fiscal costs, flexibility under the Stability and Growth Pack should be used carefully to avoid the risk of it being misused," it said.
"With the notable exception of systemic pension reforms, no significant short-term fiscal costs are generally associated with structural reforms."
Struggling with anaemic growth, the ECB has urged member states to enact structural reforms that will boost long-term growth potential. But the response has been lacklustre because governments work on time frames that are usually too short to capitalise politically on the long-run benefits of reforms.
The paper suggested the European Union should find better ways to promote long-term reforms.
"Application of the structural reform clause must be limited only to major reforms for which the benefits for long-term fiscal sustainability can be clearly quantified," the ECB said.
"In general, however, the focus of the policy debate should be on better ways to incentivise the adoption and implementation of structural reforms," the ECB said.