THE president of the European Monetary Institute yesterday warned countries not carrying out thorough reform of public finance, especially of social spending, that such disregard was not the way to restore growth and bolster flagging economies.

In a speech in Paris to the French Banking Association, Mr Alexandre Lamfalussy said that if Europeans "acquire a conviction that the process of controlling spending has been well started, thanks to a start up of thorough going reforms, the effect on confidence and the concomitant decline of long term interest rates will offset the initial deflationary effect of corrective measures".

He noted that his institute, the forerunner of a European Central Bank, would be called on to give its opinion on countries eligible for take part in the EU's planned single currency at the outset in 1999 and said it would choose "only countries that have displayed their ability to submit to the tough discipline of a monetary union managed in such fashion as to ensure price stability".