Mr Wim Duisenberg, the European Central Bank (ECB) president, chastised euro-zone governments yesterday for flouting budget deficit rules and accused them of lacking the political will to push through the reforms needed to boost confidence.

In hard-hitting testimony before a European parliamentary committee, his last before he retires at the end of October, Mr Duisenberg brushed aside suggestions the ECB should cut interest rates further to help foster euro-zone growth.

"Real interest rates are at a 50-year low in Europe... I wouldn't look for the cause of the slowness of the recovery there," he told the economic and monetary affairs committee, insisting that rates were "appropriate at present" - a sign they are likely to remain on hold for some months.

Mr Duisenberg said the blame for lacklustre growth in the 12-nation bloc rested firmly on the shoulders of governments that had repeatedly broken budget deficit rules, undermining confidence among consumers and investors.

Germany and France, the two biggest euro-zone economies, are set to exceed the budget deficit limit of 3 per cent of gross domestic product - enshrined in the European Union's stability and growth pact - for three years running in 2004 and may risk hefty penalties as a result.

Both countries plan to introduce tax cuts to stimulate stagnant economies but are reluctant to fund them by reducing spending.

They argue the strict application of budget rules would put the fragile upturn now under way at risk.

Yesterday, the European Commission cut its growth forecast for 2003 from 0.7 per cent to 0.5 per cent.

Mr Duisenberg said the lack of fiscal discipline was now "weighing adversely" on the region's long-term growth prospects. He said eight euro zone countries had met the stability pact's terms.

"Those that have not... are trying to change the rules of the game while we are in the midst of playing."

Countries that now find themselves "in an offside position should accept that they get a free kick against them", he warned.

Mr Duisenberg said he had no regrets about the conduct of monetary policy in his more than five years at the helm of the central bank and urged his successor to pursue the same course. - (Financial Times Service)