Instability, but later

22 June 2004 By Edward Hadas Follow @edwardhadas

Recognising that the stability and growth pact is almost meaningless saves face. But while the eurozone probably doesn t need a pact now, it may regret not having one if big deficits cause splits among member states.

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The European stability and growth pact was agreed in 1996, as part of the preparations for the Euro. It called for a goal of national balanced budgets, a limit of government budget deficits of 3% of GDP and a target ratio of government debt to GDP of 60%. A complex series of warnings and punitive fines were included.

The budget deficit targets have routinely been missed by the major economies in the eurozone. While the Commission has threatened fines, the major countries have made it clear that they will not pay.

The finance ministers of the Eurozone agreed in November 2003 that no enforcement efforts will be made.

The European Commission will discuss proposals for a further weakening of the pact this week.

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