Countries need clear rules to guide policy-making, and sanctions if they stray from a sustainable path. For those still hesitating whether to go that far, let me recall what happened some years ago: after a period generally acknowledged as a period of economic fair weather, governments decided to weaken the Stability and Growth Pact in 2004 and 2005.
This initiative was led by the euro area’s largest economies. The ECB voiced its “grave concerns” at the time. Governments had not used the more benign years to put their fiscal houses in order. I now see that many acknowledge that the weakening of the Pact was a serious misjudgement. The crisis has given us an opportunity.