, an effort must be made to ensure that the increase does not result in rising labour costs. the fact that healthcare spending could account for an increasing proportion of gross domestic product is not problematical in itself. this may simply reflect the preferences of an ageing and increasingly affluent society. under the present system of financing the statutory health insurance scheme, however, it would place an even greater burden on labour as a factor of production. the result would be a curtailment of employment and growth. to that extent, the measures approved last autumn for the statutory health insurance scheme are to be welcomed. a further rise in contribution rates has been avoided. such an increase would otherwise have been necessary in order to prevent the health insurance institutions from running up new deficits and to pay off the debt incurred during the past few years. patients ’ increased personal contributions towards costs will probably act as an incentive to deploy funding more efficiently. even so, these measures must be seen as no more than an initial step. in the light of demographic trends, there is a pressing need to restrict the increasing burden on labour caused by social security contributions. in my opinion, this can succeed only if the funding of the statutory health insurance scheme is decoupled from wages. proposals on this are already on the table. these envisage switching to a system of standard premiums for all insured persons with a supplementary tax - financed element of social equalisation. another requirement is to organise the healthcare system more efficiently on the supply side through increased competition. without the measures approved at the end of 2003 an increase in the contribution rate to the statutory pension insurance scheme would also have been necessary this year. however, stabilising the contribution rate was possible only by drawing to a not insignificant extent on capital assets and thereby incurring greater general government deficits. in the long term, future increases in contribution rates can be avoided only if the level of pensions is lowered or the statutory retirement age is raised. it seems to me that a combination of both approaches makes sense. with respect to the level of pensions the federal government has already made appropriate proposals with the introduction of a “ sustainability factor ”. the resultant gap in pension benefits can be closed by increasing the weight of supplementary private pension schemes. a gradual increase in the statutory retirement age, which would take account of increasing life expectancy, has been postponed by the government. the decisive factor is ultimately the curbing of the contribution burden. only in this way can employment and thereby the financing base

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