for the third time in succession germany would exceed the reference value for the deficit ratio laid down in the eu treaty, namely 3 %. in accordance with the stability and growth pact, the next step in the excessive deficit procedure should therefore have been launched against germany. however, the ecofin council rejected a recommendation to this effect from the european commission on 25 november last year. this precedent has greatly undermined the commission ’ s credibility with respect to the threat of using sanctions when a country continues to pursue an undesirable fiscal policy. i share the european commission ’ s concern about the action of the ecofin council and respect its decision to take the matter to the european court of justice for legal clarification. the ecofin council ’ s decision reveals an in - built flaw in the pact, namely that to some extent sinners are passing judgement on sinners. even so, i am sceptical about amending the eu treaty or the pact. there is a danger in every amendment to the stability and growth pact, especially in the present situation, that the existing rules will be relaxed. by contrast, the potential advantages seem to me to be comparatively small. however, i do think that the implementation of the pact could be improved. in my opinion, undermining the pact poses considerable risks in the medium to long term, not least for growth potential. if fiscal policymakers are given politico - economic incentives to borrow, it could mean that in some countries excessive deficits would in the future tend to become the rule rather than the exception. they may also feel more inclined to neglect the objective laid down in the pact, namely of achieving a budgetary position which is at least close to balance in the medium term. it is not only on account of the growing interest burdens that rising government debt ratios restrict the available budgetary policy options for growth - promoting investment in, for example, education and make it harder to tackle the challenges posed by the foreseeable budgetary burdens arising from demographic developments. persistently increasing government borrowing might push up capital market interest rates, and this would have a negative impact on economic growth potential and employment trends. it is precisely in the present situation that unresolved budgetary problems give rise to uncertainty about future fiscal policy. this encourages consumers and investors to adopt a wait - and - see attitude and thereby possibly curbs economic growth in the short term, too. for that reason, i do not consider consolidating public finances and

njuguna ndung ’ u : financial market and payment system developments in east africa remarks by prof njuguna ndung ’ u, governor of the central bank of kenya, at the 17th ordinary meeting of the east african community monetary affairs committee ( mac ), nairobi, 16 may 2014. * * * my fellow governors ; deputy secretary general, eac secretariat ; delegates from the eac central banks ; eac secretariat officials present ; imf officials present ; distinguished guests ; ladies and gentlemen : good morning. it is a pleasure to welcome you to nairobi for the 17th ordinary meeting of the east african community monetary affairs committee. it is an honor for me to host this important meeting that will deliberate on pertinent issues aimed at driving forward the eac integration agenda. we are also grateful to have the eac central bank governors grace the official launch of the east african payments system ( eaps ), later today. the launch of eaps marks a key milestone in the eac integration process and will improve the efficiency of the payments system in the region. this is one of the targeted quick wins by the eac central banks. fellow governors, we have managed the financial sector in a commendable manner since the onset of the financial crises in 2008, a period beset with structural shocks, both external and internal. despite the challenges, the conduct of monetary policy in the region has continued to take effect, and is delivering expected results. we have in the recent past managed to coordinate among others, market expectations on inflation, which is a great boost to the credibility of central banks in discharging the principal mandate of price stability. this outcome partly reflects implementation of appropriate operational frameworks that have strengthened both the signaling of the policy stance and fining - tuning interbank liquidity management. however, a few challenges, though no less important, still remain especially in the conduct of open market operations where interventions to stabilize interbank liquidity are at times misinterpreted by money market participants as an attempt to defend a particular level or direction of the value of the currency. it appears we have to strive even more to improve our communication on monetary policy operations in order to enhance the market ’ s understanding of our use of available tools for monetary policy operations. reverting to the purpose of this meeting, we are here to : review progress on the implementation of the decisions of the 16th mac meeting held in kampala on may 23, 2013 ; consider strategic objectives to operationalize