Douwe Osinga's Blog: The weird European stability pact

Friday, October 10, 2003

Why again do we have the European Stability? The Germans feared the Euro might be a weak currency, weaker than their D-Mark, if other countries would join with less of a tradition when it comes to paying attention to the state finances. Of course Germany is now one of the countries flouting the rules of the pact. The fact that the Euro is rather strong now, when the deficits in Europe are rising above the limit set in the pact, when the Euro was really weak when the pact was functioning, adds to the irony.

The stability pact was a bad idea of course to begin with; The Euro takes away one tool for individual countries to control their economies, setting their interest rates. So why also limit the options for these countries to control economies using the government budget? It seems not to be important anyway, since France is not going to do anything about their budget deficit and who is going to fight France?

The trouble is of course that the whole pact will be incorporated in the new European Constitution. Dead on arrival, but cut in stone.