deficit in the euro area rose from 1. 6 % in 1999 to 2. 4 % in 2004. during the same period, the unadjusted primary surplus went down from 2. 9 % to 0. 6 %. 2 this “ consolidation inertia ” is mirrored at the legislative level by the radical changes made to the stability and growth pact. the term “ pact ” reflects the political consensus which underlay its creation. in the legal sense, it is not in fact a “ pact ”, meaning an agreement under international public law, but rather two council regulations3, in other words, secondary european law. this is reinforced by the european council resolution of 17. june 1997. 4 the “ mother of all rules ” is still the primary law under article 104 of the ec treaty and protocol no 11 on the excessive deficit procedure. the changes to the stability and growth pact were agreed, after a lengthy debate, by the ecofin council on 20 march 2005 and by the heads of state or government at its spring meeting only a few the information on the budgetary figures ( including the cyclically adjusted values ) is based on european commission figures on government data from spring 2005.. the primary balance is defined as the government deficit / surplus excluding interest expenditure. council regulation ( ec ) no 1466 / 97 of 7 july 1997 on the strengthening of the surveillance of budgetary positions and the surveillance and coordination of economic policies and council regulation ( ec ) no 1467 / 97 of 7 july 1997 on speeding up and clarifying the implementation of the excessive deficit procedure, oj c209, 2 august 1997, p 1 and p 6. oj c236, 2 august 1997, p 1 ; in its judgement of 13 july 2004 ( c - 27 / 04 ), the ecj also mentions the council resolution in connection with the methodology of the deficit procedure ( 71 et seq. of the grounds ) as having “ defined more precisely and strengthened ” the stability and growth pact, without deriving any further specific legal consequences from this. days later. 5the council adopted the relevant changes to regulations 1466 / 97 and 1467 / 97 on 27 june 2005. 6 as far as the results are concerned, i share the opinion held by most neutral observers : namely, that overall the fiscal rules have been significantly weakened. by contrast, the challenges facing a stabilityoriented fiscal policy in terms of public acceptance have grown considerably. the less stringent the rules, the more convincing sound fiscal

in protocol no 11 to the ec treaty and thus enshrined in primary european law – not only in the event of a severe recession or natural disaster, but also in the case of any negative annual growth rate ( potentially, even a small one ) or very low gdp growth relative to its potential. moreover, specified were “ all other relevant factors ” to be taken into account when deciding on excessive deficits in accordance with article 104 ( 3 ) ec. this is a long list of potential exceptional circumstances and grounds for exemption hindering the implementation of an excessive deficit procedure. these include “ prevailing economic cycles ”, “ policies in the context of the lisbon agenda “, measures “ to foster research and development and innovation ”, “ debt sustainability ”, “ financial contributions to foster international solidarity ”, contributions to “ achieving european policy goals, notably the unification of europe ” ( in other words : including payments relating to german reunification ) and many more. faced with this list, it is difficult to speak of a consistent, coherent set of rules. ( 3 ) the deadlines for the incentives and sanctions system have been extended, for example, for council recommendations pursuant to article 104 ( 7 ) of the ec treaty, issuing a warning notice to member states in accordance with article 104 ( 9 ), non - interest bearing deposits and, ultimately, fines ( article 104 ( 11 ) ). ( 4 ) furthermore, the deadline for the correction of the excessive deficit was widened to up to two years in case of “ special circumstances ”, which are identical to the “ other relevant factors ” mentioned above. ( 5 ) one change which is more significant than the extension of deadlines but has received less public attention is the possibility now provided for repeating procedural steps. in the event of “ unexpected ” economic events, council recommendations may be repeated and a warning notice reissued any number of times. 24 as a result, the sequential nature of the incentives and sanctions system, whereby each measure is succeeded by a more stringent one, is lost. however, the sequential nature of the old pact was also limited given that the european court of justice 25 had also accepted ( albeit within the bounds of an action brought against the council for failure to act ) the possibility of virtual inaction on the part of the ecofin council – for example, through the rejection of commission proposals for council recommendations. an overall assessment of the changes to the two regulations relating to the pact must find that there is no evidence – at least not in any operational