franz - christoph zeitler : the stability and growth pact speech by professor franz - christoph zeitler, member of the executive board of the deutsche bundesbank, at the forum for discussion of the friends of europe, the hanns seidel foundation and the konrad adenauer foundation, brussels, 16 february 2004. * * * ladies and gentlemen i extend my thanks to the organisers - the friends of europe, the hanns seidel foundation and the konrad adenauer foundation - for cordially inviting me to speak at this forum. i thank you for drawing attention to one of the fundamental elements of, and pillars of confidence in, monetary union : the stability and growth pact! i if we look more closely at the short and snappy term “ pact ” and analyse it from a legal standpoint, we see that it is an umbrella term that covers three legal instruments. – a council regulation on speeding up and clarifying the implementation of the excessive deficit procedure ( regulation ( ec ) no 1467 / 97 of 7 july 1997 ). – a council regulation on the strengthening of the surveillance of budgetary positions and the surveillance and coordination of economic policies ( regulation ( ec ) no 1466 / 97 ). – a european council resolution taken at the amsterdam summit on 17 june 1997. naturally, the “ mother of all rules ” remains the treaty on european union ; article 104 ( 1 ) states clearly that “ member states shall avoid excessive government deficits. ” article 104 of the treaty also regulates the monitoring and infringement procedure. what the above regulations and the council decision do is merely specify and expedite the procedure. i think that one thing deserves to be emphasised. contrary to contemporary popular usage, the “ pact ” is not just an intergovernmental agreement, but rather an instrument to apply and implement primary and secondary european legislation. ii maybe this relatively complicated legal construction, which the general public is not widely aware of, is why the stability and growth pact is wittingly or unwittingly described as “ rigid ”, “ too legalistic ” and “ too economically inflexible ”. this is also why it is our job, as central bankers, to communicate the economic and fiscal policy aims of the pact. the stability and growth pact does not exist for its own sake, nor is it the “ hobby horse ” of some central bankers ; rather, it is a requirement for the long - term effectiveness of monetary union. i would like to

members ” other member states or acceding countries. until the european court of justice has decided on the issue, i certainly believe it is not necessary to discuss changes to the pact. there may indeed be some well - meaning and reasonable suggestions out there with the intent of improving the pact ’ s effectiveness, such as the idea of “ giving the pact more muscle ” in the event that a member state fails to reduce structural deficits in good years and thereby robs itself of the discretionary scope to stay under the 3 % - limit in not - so - good years. despite all the proposals, it must be borne in mind that loosening the rules of the pact might open up a pandora ’ s box, and a new legal framework could have potential damaging effects on growth and conflict avoidance in monetary union. the aim must always be to achieve effective, operable and transparent procedures. as the ancient romans told us, “ quidquid agis... respice finem ”.