, the 3 % maastricht level. for example, the target in the czech republic is not to exceed 4 % of gdp in 2006. nonetheless, it has not yet been fully appreciated that upon eu accession, the stability and growth pact will become relevant to the new member states. admittedly, the application of sanctions will be postponed until a country becomes a member of the eurozone. but even if a country is not a subject to sanctions, as a member of the eu club it should have in place at least a credible programme towards achieving its objectives. moreover, if a country targets relatively early eurozone entry, it should first create a sufficient safety margin above the 3 % deficit limit to be insured against distress - i. e. it should avoid the mistake that has been made by some of the current eurozone members concerning the s & g pact. i hope that the uncertainty surrounding the pact ’ s future would not be viewed as an excuse for delaying necessary fiscal and structural adjustments. even if redefined in a more flexible way, it is quite clear that the structural deficits currently observed in many of the cecs will not be tolerable under the pact, as they will not pass the sustainability and policy mix tests. therefore, the existence of the s & g pact makes the case for fiscal consolidation even more appealing than it might look at first sight. to conclude, let me wish you a very fruitful discussion during this conference, as well as a very pleasant stay in prague. thank you for your attention.

this naturally undermines its credibility and supports calls for various “ escape clauses ”, to use the inflation - targeting terminology. the pact is thus fighting the same battle that the conservative central banker was some time ago. it should evolve towards a “ constrained discretion ” system that will fulfil its major goals - sustainability, credibility and co - ordination of stabilisation policies - yet at the same time be sufficiently flexible to allow for proper responses in adverse periods. it has yet to convince policy - makers and the public that it can deliver the lunch without them having to pay too high a price for it in terms of cyclical stabilisation. so far, the pact has seemed to be losing the battle. this is somewhat unfair, as the adverse period came before most eu countries had achieved the target of balanced structural budgets, which reduced their manoeuvring space considerably. in a sense, the pact is thus paying a price for being too lax in the previous period, i. e. not defining a binding convergence path to the target, rather than a price for being too rigid. on the other hand, i also agree with many of the critiques and proposed adjustments to the pact. defining a convergence path, looking at structural rather than headline budgets, taking into account public debt levels and sustainability of public finance, etc., are certainly steps towards achieving the “ constrained discretion ” in fiscal policy i am talking about. the adverse period should thus be taken as an opportunity to modify the rule in a favourable way, rather than as a reason to scrap it completely. i believe that pursuing this opportunity will secure a future for the s & g pact. i am convinced that some rule of this kind will always have to be in place in the eurozone, and not only because of its multinational nature, but also due to the general advantages of rules. let me also mention briefly the importance of the s & g pact for the czech republic and other eu accession countries. the czech republic, like many other cecs, is facing the problem of rising budget deficits. this is partly a reflection of the previous transition costs, but these are gradually fading away. the root of the problem is structural, similar to the challenges faced by advanced eu countries as well - population ageing, an overgenerous social system, etc. at present, most countries are preparing consolidation programmes aimed at reversing the negative trends. usually, the ambition is to bring the public deficits close to, or below