present debate some conclude that the current policy framework should be relaxed, which is normally expressed as saying it should become more flexible. i have difficulty understanding this view. on the contrary, i think the developments in recent years have strengthened the arguments in favour of a regulatory framework. from the start there were concerns about “ free riders ”. these concerns were confirmed sooner than expected. there was also some unease that small countries could be affected if the larger ones did not maintain discipline. here, too, developments have given cause for concern, at least as regards the implementation of the regulations. allow me to add a third argument. during the decades before the start of monetary union, economic policy in the eu was dominated by germany. this was because of germany ’ s size, of course, but it was also due to germany ’ s economic success over several decades and its stable economic policies. there was almost a moral dimension to germany ’ s actions. i still remember the meeting in the monetary committee when it became clear that germany ’ s public finances in the coming years would be as weak as italy ’ s. the dynamics in the room changed as if by magic. since then no country has been able to take over the leader ’ s mantle. in such a situation peer pressure can easily turn into peer protection. let me now turn to the future. in doing so i have tried to be constructive and limited myself to proposals i believe to be politically feasible. i will be happy to return to any of the subjects i will bring up. i. my first point concerns the division of labour and the cooperation between fiscal and monetary authorities. this is firmly established in the treaty. the only uncertainty relates to the responsibility for exchange rate policy. of course all parties must respect the existing rules. the demands that fiscal authorities can impose on the ecb are that the bank conducts a clear, consistent monetary policy aiming at price stability for the union as a whole, which can be understood and predicted. in the same way the authorities responsible for monetary policy should be able to count on a clear, predictable and long - term fiscal policy targeted at achieving balance over the economic cycle ( after taking account of the demographic changes that now lie ahead ). more generally, i think that we in europe should model our approach on cooperation between the monetary and fiscal authorities along the lines of the relationship between the fed and the treasury during the clinton years. europe would also be better off if the finance ministers followed the advice of my british colleague at a recent meeting

“ ask not what the ecb can do for you, but what you can do for the ecb ”. there may also be a need for more collegial leadership from the euro area ’ s finance ministers, particularly if rapid coordinated action is required, something that can not be ruled out. one example could be a situation with a dramatic and substantial change in the exchange rate, another a financial crisis. a strong eurogroup with a respected chairman should be positive in this regard and should facilitate an effective dialogue with the ecb. ii. allow me now to comment on the stability and growth pact itself. it is not difficult of course to see economic arguments in favour of amending the pact. however, one fundamental problem is that it is difficult to see how a relaxation of rules in certain areas could be compensated by a purposeful tightening in others. relaxing the 3 per cent rule would thereby imply a weakening of the construction as a whole at a time when - as i mentioned earlier - the conduct in some countries suggests that if anything the opposite appears to be required. there is already flexibility in the regulatory framework for different interpretations of the phrase “ exceptional circumstances ”. to increase this flexibility by allowing for country - specific factors on a general level would lead to risks. in particular, there is a risk that the rules would be interpreted too much ex post and that small countries would be discriminated against even more than is already the case. however, there is room for substantial improvements in the preventive arm of the pact. the achilles ’ heel of the pact is not actually the 3 per cent limit but its asymmetry ; the pact involves gentle warnings in booms but hard sanctions in slowdowns. this means that the pact lacks credibility when, after impotently highlighting indiscipline during booms, it is expected to force governments into highly painful, 180 - degree turns towards austerity during slowdowns. it also risks contributing to procyclical policy. against this background the commission has worked hard on improving the preventive arm in recent years. i have sympathy for many of their proposals. some examples : • strengthen incentives in good times. here, considering the debt level could play a role. • timetables could be improved - linking them more closely to national processes. • using the now more developed measures of cyclical balances could also be useful in this context. in general, i think it is important to enable the commission to dig deeper into these areas