Overall, the cyclically adjusted deficit in the euro area rose from 1.6% in 1999 to 2.4% in 2004. During the same period, the unadjusted primary surplus went down from 2.9% to 0.6%.2 This “consolidation inertia” is mirrored at the legislative level by the radical changes made to the Stability and Growth Pact. The term “pact” reflects the political consensus which underlay its creation.
Other downside risks we discussed at the meetings were a severe tightening of global financial conditions, sharper monetary policy impact amid high debt, stickier inflation, systematic sovereign debt distress in emerging markets and developing countries, China's growth and the fragmentation that is hampering multilateral cooperation.