European policymakers must not tear up the rule books when launching emergency economic rescue packages, Jean-Claude Trichet, the European Central Bank president, has urged.

Fiscal indiscipline could threaten already fragile economic confidence and increase the nervousness of capital markets about governments’ funding needs, Trichet warned in video and newspaper interviews with the Financial Times published today. But he argued that the European Union’s 'stability and growth pact', which sets rules on public deficits and debt, offered flexibility to countries with stronger finances.

'We would destroy confidence if we blew up the stability and growth pact,' he said.

Adding to the global economic gloom, Masaaki Shirakawa, the governor of the Bank of Japan, has warned that Japan’s economy is likely to contract in the year ending March 2010. In a separate interview, he revealed that the central bank was next month poised to reverse its forecast of a mild recovery.

Financial Times