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Committee on Economic and Monetary Affairs of the European Parliament with the President of the European Central Bank

By Sylvester C. W. Eijffinger


Since the first countries broke its rules, the Stability and Growth Pact (SGP) has been under fire, with many arguing for reform and some even for its abolition. Especially the enlargement of the European Union by ten new Member States (that will eventually also join the Euro) has fed the discussion whether the uniform rules of the Pact are still appropriate for countries that are considerably heterogeneous and economically diversified. As a reaction to the SGP’s problems the European Commission has published a Communication in September 2004, in which it presents proposals on how to enhance the effectiveness of the Pact’s rules. We will argue that these proposals are a step in the right direction, however improvements are still necessary, especially with respect to partisan enforcement. More specifically, increased flexibility of the rules should go together with enhanced enforcement to prevent that the transparency of the Pact is watered down without actually improving its functioning and implementation. In the light of these considerations, it is fair to say that the Communication of the Commission does imply a step in the right direction, but there is still substantial room for improvement towards a more balanced reform proposal, especially when taking into account that the changes regarding enforcement put forward by the Commission only materialize when the Constitution will be ratified. This will certainly be a lengthy process (if ratification takes place at all). Increasing the flexibility of the Pact without simultaneously properly addressing the issue of enforcement will be watering down both transparency and credibility while lacking to enhance the Pact’s functioning and implementation. If the declared goal of the Commission is increasing the Pact’s effectiveness, it should take this into account.

Year: 2004
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