[A-List] EU stability & growth pact: support

["Keaney Michael" <Michael.Keaney@xxxxxx>]

Europe should stick to the stability pact
By Jose Maria Aznar
Financial Times: October 4 2002

Six months ago in Barcelona, European Union leaders mapped out an agenda
of macroeconomic stability and structural reform. We agreed to undertake
the necessary steps to improve growth and job creation. We agreed to
open markets, make our economies more flexible and adapt them to the
opportunities created by globalisation. We also committed ourselves to
consolidating our public finances and setting a date for balancing our
budgets.

To opt for macroeconomic stability and structural reform often requires
making difficult choices between important priorities. It also requires
taking decisions now in order to achieve the desired results in the
medium term.

Europe's current economic woes make these decisions harder still. That
is why - though European governments agree on the cause of the present
difficulties, just as they in principle agree on the solutions - it is
all too tempting to deviate from the path we have chosen. Yet to do so
would be a grave mistake.

We need only look back to the lavish public spending and mounting debt
of the 1980s and the beginning of the 1990s to remind ourselves where
such deviations might lead us. From 1991 to 1995, the average European
deficit was 5 per cent; and the long-term interest rates were 4
percentage points higher than they are at present. The result of
profligacy is all too predictable: higher interest rates and the gradual
asphyxiation of business. That does not sound like the message we have
spent the past few years broadcasting to the rest of the world.

To postpone economic reform - or to renounce it altogether - would prove
just as dangerous and would condemn us to a long period of stagnation.
That is borne out by the EU's dismal record of economic growth during
the 1990s: it grew by more than 3 per cent for just one year.

Sound economic growth is never achieved by taking short cuts. Whenever
we, or others, have tried, failure has resulted. Our objective is
simple: to unlock Europe's potential. We know we have vast resources to
achieve it - but only fiscal responsibility and economic reform will
make that possible.

It is true that the international economy is going through testing
times. But we cannot use that as an excuse: not all of our problems
derive from this. Nor did we show much determination to carry out the
necessary reforms when times were better for the world economy.

Nobody in the EU today defends the old policies of high public borrowing
and government debt. So why question the spirit of the stability and
growth pact, the EU rules on budget deficits? In my view, this is far
from sensible. Any change in the rules governing the pact would risk
undermining the credibility of the euro on the international markets. It
would also risk our own credibility before the citizens of the EU. We
promised to put our public finances in order. We cannot offer grandiose
ambitions and deliver only meagre results.

The Stability and Growth Pact and the Lisbon strategy - a programme of
reforms to liberalise European markets, modernise welfare systems and
increase employment - together represent a very solid framework. The
entire EU considered it appropriate six months ago at Barcelona. It
continues to be so today. We should not take the risk of changing it.

Europe has rightly been built step by step. This has allowed us to move
forward. But there is a danger of slipping backwards. We must be all too
aware of that during the coming months. Tampering with the Stability and
Growth Pact might appear the easy choice but it would be the wrong one.

The writer is prime minister of Spain