A coarse instrument? The Stability Pact's situation is not a comfortable one. It is essential both for the EU economic and monetary stability and to ensure international confidence in the euro; but at the same time the opinion that it is an imperfect instrument that can and has to be improved is gaining ground within the Institutions themselves. European Commissioner Pascal Lamy declared this week (interview in "Il Sole - 24 Ore" - with Adriana Cerretelli) that is was a "coarse" instrument. It needs to be made more sophisticated. It's true that there are elements of flexibility in the current Pact and that the Commission has already provided the example of a more refined application (notably with the automatic stabilisers and the notion of structural deficit). But it is the Pact that needs refining, and Pascal Lamy even indicated when it should be done: when the United Kingdom signs up to the euro.
What is Pascal Lamy's main gripe about the Stability Pact? Of having the spirit of a scarecrow, i.e. an instrument to frighten: "we have invested a great deal in procedures and discipline, not enough in dialogue and economic policy (…) The Stability Pact is a coarse instrument of governance. It's not surprising that it's not popular (…) It needs replacing by something more intelligent, more refined. It's ten years old, it needs modernising".
… to be reviewed when the British arrive. The time to do that is, says Lamy, the arrival of the British, should they decide. Why then? "Because their system of managing public finances is much more sophisticated than the Middle Ages rule by which the budget deficit may not exceed 3%". Why Middle-Ages? "The rule is sound. When there is economic growth, a deficit of 3% of GDP is too much. But what to do if there is no growth? Isolated, the 3% rule is inadequate, as it does not define the notion of a balanced budget, nor what public investment is, nor its relation to the debt. There may be good reasons to fall into debt for the benefit of future generations. The matter is very complex, one has to be precise". Despite these remarks, Pascal Lamy stressed that, meanwhile, the Pact needed to be respected, and that it was only the presence of the euro that allowed certain countries to skid off track. He cited France: "for now, the euro mass is protecting France that, had it had the same attitude with the national currency, would have broken its bones".
Pedro Solbes' reaction, you read it in yesterday's EUROPE, p.7: "Pascal Lamy has an external vision of the Pact. He knows trade policy much better than I do".
Romano Prodi's two remarks. That's how we stood when Romano Prodi in turn stepped in with an interview in "Le Monde" that has already created quite a stir (again, see yesterday's EUROPE, p.7). In practice, the Commission president placed emphasis on two major political aspects: a) the powers of the Commission. "The Stability Pact is imperfect, that's true, we need a more intelligent tool and greater flexibility. But if we (the Commission) want to use flexibility and intelligence, we need the authority". Do you have it? "Clearly not, nobody has the authority. That's the problem. We cannot have a flourishing, strong, growth-led Europe without being able to adjust decisions depending on the moment. I'm fully aware that the Stability Pact is stupid, like all decisions that are rigid. To adjust them, we need unanimity, and that doesn't work. Understanding is no enough, we must also be able to decide"; b) co-ordination of economic policies. "In this context (following the arrival of the euro), the idea of having different economic policies is crazy. When you have the same currency, you can different inflation rates for a year, but not for three or four years. Co-ordination of economic policies, with the Stability Pact, is the bottom line."
What I believed I could say on economic co-ordination, I said in this section yesterday and that of 16 October. As for the Stability Pact, I can still add a dual reminder. Jacques Delors wrote in his "White Paper" (inexhaustible source of ideas on Europe) that the EU could borrow and fall into debt on the markets, if it is to achieve major infrastructure projects of European interest, of benefit to all, and especially the new generations. And Mario Monti revealed (see "text of the week" section in our bulletin dated 13 September) that when the Stability Pact saw the light of day he had envisaged making a distinction between operational spending and investment spending. But, in the end, he had decided to "give priority to the clarity of the rule, to a comprehensible pact as opposed to a more intelligent pact". We can thus claim that today's reflections take over from those of 1997 that were not followed up due to the priorities of the moment. (F.R.)