Public expenditure needs to be diverted away from improductive areas and poorly managed transfer systems, towards uses that enhance productivity and the accumulation of physical and human capital. There is a close relationship between structural  2  BIS Review 7/2004  reforms and sound fiscal policies. Together, they enhance confidence and improve the economic situation on a lasting basis.
In this sense, the rules laid down in the Stability and Growth Pact are an indispensable element in promoting policies aimed at strengthening economic prospects in the euro area. 2004 will be a crucial year for preserving and enhancing the credibility of the institutional framework.