By Anne D. Picker, International Economist, Econoday
Monday, October 21, 2002
The Stability and Growth Pact will remain on center stage after Germany - the Pact's architect - conceded that it will breach the 3 percent GDP deficit threshold this year. This was no surprise given the anemic performance of the German economy. The commitment to fiscal tightening next year to rectify the situation comes at a time when weak conditions argue against austerity. The French have openly refused to tighten fiscal policy next year. As a result, the discussion on the rules and enforceability of the Pact has surfaced once again. The European Commission has been firm in its commitment to the Pact despite the mounting trouble. The European Central Bank, when setting monetary policy, looks to fiscal developments in the region as a whole. The situations in France and Germany - and Italy is not far behind - make for an awkward time at the ECB.