the public and politicians that the principles and procedures for budgetary policy in the treaty and in the stability and growth pact are vital for the success of economic and monetary union. i believe i am on common ground in stating that from a theoretical perspective, the impact of fiscal policy on the economy is rather uncertain. empirical evidence generally points to a positive but low impact of an expansionary policy on output. therefore, the power of fiscal policy to reduce cyclical volatility or to stimulate the economy should not be overestimated. discretionary fiscal measures have proved to be ill - suited for fine - tuning the economy in the past. due to time - lags it has often lead to a pro - cyclical impact on the economy. moreover, asymmetric behaviour in recessions and booms has contributed to deteriorating public finances in the last decades. instead, structural reforms directed at improving price and wage flexibility and the mobility of labour could strengthen other channels of stabilisation. to sum up, by ensuring sound fiscal positions and emphasising the role of automatic fiscal stabilisers in dampening cyclical fluctuations, the ec - treaty and the stability and growth pact form an adequate framework for fiscal policy in monetary union. the pact is not a curse but a blessing. and on a personal note, i would like to add that the very constituting principle of all democracies is the rule of law. it means that government in all its actions is bound by rules fixed and announced beforehand. the rule of law lays down the primacy of law over policy. governments which do not uphold this principle offend against the fundamentals of modern societies and risk a substantial loss of confidence. this holds true for argentina ’ s arrears to the imf and for attempts of eu - countries to not comply with the spirit and letter of the ec - treaty and the stability and growth pact. the latter is especially disturbing, because the rule of law in modern societies seems to be a french invention. it is based on the principle of separation of powers which was formulated as early as 1748 by the great french political philosopher, montesquieu. moreover, it was the french people who first realised this concept in continental europe. a government breaching the law leads down the slippery slope from which escape is extremely difficult to find. i would also like to draw your attention to a paper hermann remsperger and i have written on the importance of budgetary rules and on the criticism of the stability and growth pact

s work. the specific coordination processes are : · the luxembourg process ( 1997 ), which aims to create more employment. it consists of employment guidelines which have to be implemented by “ national action plans ” on employment and are monitored by the commission. · the cardiff process ( 1998 ), which is intended to enhance structural reforms in the member states and their multilateral monitoring to create “ peer pressure ” among them. · the cologne process ( 1999 ), which established a “ macroeconomic dialogue ” at community level with representatives of governments, ecb and trade unions involved. this dialogue aims not to achieve an ex - ante coordination of economic policies, but the exchange of information and views on economic developments. these processes were enhanced in 2000 by the “ lisbon - strategy ” with its “ new strategic goal ” for the next decade, that is “ to become the most competitive and dynamic knowledge - based economy in the world, capable of sustainable economic growth with more and better jobs and greater social cohesion ”. a very important conclusion in lisbon was that no more coordination processes are needed and that the existing processes should be simplified. it is also very reasonable that the bepgs now focus increasingly on structural policies. that can be a vantage point for the coordination processes to accomplish better - then - expected results in future. up to now, it has been difficult to detect a noticeable impact from these various coordination processes on the convergence among member states. within the framework of the luxembourg process, governments did not meet their commitments to enhance employment. unemployment is increasing again and is not significantly lower than in 1997. in keeping with wage autonomy, governments simply cannot impose any guidelines that regulate negotiations between management and trade unions. up to now, the cardiff process has led to only limited progress, if at all, on structural reforms in larger economies. the cologne process seems unnecessary to me. in my judgement, all these processes have been little more than bureaucratic exercises. what are the reasons? · after convergence efforts in the run up to the third stage of emu : adjustment fatigue ; · the willingness for further progress on integration has lost steam ; · political behaviour has not adapted to the new environment. the integration of europe is linked to the readiness to curb national sovereignty. the lasting success of the euro cannot be achieved solely through monetary policy. the success relies as well on the support of the fiscal, labour and structural policies of member states. however, coordination should not be understood as a substitute for the responsibility of policymakers at the