As it happens, the choice of inflation measure matters for the interpretation of this episode, as alternative measures gave policymakers somewhat different signals. Notably, core PCE inflation for 2003 was initially reported, in the first quarter of 2004, as having slowed to about 1 percent, and it appeared to be on a steep downward trajectory.
It prevents unduly lax fiscal policies and, if they might occur, provides an effective instrument for putting an end to an excessive deficit. In other words, the stability pact prevents spillovers from lax fiscal policies to the interest rate level of the euro area as a whole and to the single monetary policy of the ECB in particular.