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On theStability and Growth Pact – Speach in European Parliament

Mr President, I should like to begin by making one point: let us look to what is really important in the European economy, namely that we now have low inflation and low interest rates throughout the European economy. It is easy to look back to the Seventies and see how matters were then, for at that time we had high inflation, high unemployment and governments that added to their budget deficits. Thanks to the Stability and Growth Pact, we have a common code and a common criterion that has counteracted these factors.

The paradox is that we are now having this debate partly because the Stability and Growth Pact has operated as it was supposed to do. It has put political pressure on those countries that increase their deficits and, for that reason, it is of interest to us all, irrespective of whether or not we have the euro or of whether or not we participate in monetary union.

The basic problem in the European economy, affecting the image of the Stability and Growth Pact, is that too many countries have inflexible economies that are incapable of handling the deficit situation when times are hard. In this context, I want to say that there is a direct link between the Stability and Growth Pact and the Lisbon process because we either develop flexibility in the Member States’ national economies, providing dynamism and growth, or have a more flexible interpretation of the rules, but we do not solve Europe’s problems by introducing other rules.

I therefore wish to appeal to the Commission to be objective and clear, no matter what form the criteria take. The solution does not lie in change of the pact but in reform of the European economy.