* Eurogroup head warns of standstill in economic reforms
* Eurogroup head welcomes ECB action, gives time for reform
(Adds Dijsselbloem spokeswoman on contract condition)
By Huw Jones
LONDON, June 5 Euro zone countries could get
more time to meet budget targets as part of a "contract" to
carry out effective reforms, Jeroen Dijsselbloem, who heads the
Eurogroup of finance ministers, said on Thursday.
The European Commission could play a role in checking
whether changes such as relaxing labour market rules were
actually being done in return for more time to make changes such
as cutting government debt, Dijsselbloem said.
"I would be very much in favour of that kind of contract,"
he told a European Union seminar.
"It could be an interesting deal between the German side of
Europe and the Italian side of Europe," he added.
Germany has led demands for heavily indebted countries to
cut spending while Italy's Prime Minister Matteo Renzi has
sought more emphasis on spurring economic growth to boost
government revenue and reduce the relative weight of debt
Dijsselbloem said such contracts were possible because
government finances had already been largely overhauled and
economies that were picking up well in the southern euro zone.
"This is the right time to strike this deal, between north
and south," he said.
His spokeswoman said any such contract would only be offered
to a country that has already cut its budget deficit to below 3
percent of GDP.
The debate over striking a new balance between the pace of
fiscal consolidation and the need to boost growth is heating up
as unemployment remains stubbornly high in some euro zone
Some analysts say France risks missing a 2015 target for
completing fiscal measures - a deadline which was already
extended by two years - but Dijsselbloem said the country was
still "on the correct path and we have to be careful" not to
take off the pressure.
But if Italy could make the right reforms and these were
credible and upfront, then the euro zone should allow the
Italian government to make changes on the fiscal side, he said.
Dijsselbloem, who is also finance minister of The
Netherlands, said the pace of reforms has to be stepped up with
a "lot of work to be done" on boosting competitiveness.
"My biggest worry now is that we are going to end up in a
standstill period, and I think we should push ahead on the
reform side," he said.
He cautioned that Thursday's actions by the European Central
Bank to prod banks into increasing lending to aid growth won't
be enough on their own and that politicians also needed to push
ahead with economic reforms.
"We cannot just depend on monetary policy. We still have to
do a lot ourselves," he said. The rate cuts could "buy more
time" to complete economic reforms and this time should not be
He said the banking union under which the ECB will supervise
top lenders in the euro zone from November is making good
progress but that some rules needed toughening up.
The planned leverage ratio, a measure of capital to a bank's
total assets, has been provisionally set at 3 percent but this
is too low, Dijsselbloem said.
(Additional reporting by Marc Jones; Editing by Ruth Pitchford
and Robin Pomeroy)