Lars Heikensten: Stability and Growth Pact needs reinforcement Speech by Mr Lars Heikensten, Governor of the Sveriges Riksbank, at a conference organised by the European Commission, Brussels, 15 December 2004. *  *  *  Thank you, Mr Chairman. I very much appreciate this opportunity to comment on the work of the Commission. Perhaps the invitation is particularly pleasing for me as, unlike the other members on the panel, I do not come from a country that has introduced the euro. I should also immediately say that I very much enjoyed reading the background report and the communication on the Stability and Growth Pact produced by the Commission. Let me begin by characterizing the experiences from the Monetary Union so far. There is no doubt that the regulations on fiscal policy laid down in Maastricht had clearly positive effects up until the euro was launched. They are still having the same impact on those countries that remain outside the single currency and have the ambition of joining in the future. Far-reaching measures were taken, and are also being taken today, to enable entry into the Monetary Union. Noting the progress, some people have even claimed that earlier less well-functioning national economic-political cultures have been replaced by a more stability-oriented common European culture. But since the start of Monetary Union, this momentum has been lost. Several countries have returned to their old behaviour even though there are good examples of the contrary.
The demands that fiscal authorities can impose on the ECB are that the bank conducts a clear, consistent monetary policy aiming at price stability for the Union as a whole, which can be understood and predicted. In the same way the authorities responsible for monetary policy should be able to count on  a clear, predictable and long-term fiscal policy targeted at achieving balance over the economic cycle (after taking account of the demographic changes that now lie ahead). More generally, I think that we in Europe should model our approach on cooperation between the monetary and fiscal authorities along the lines of the relationship between the Fed and the Treasury during the Clinton years. Europe would also be better off if the finance ministers followed the advice of my British colleague at a recent meeting “ask not what the ECB can do for you, but what you can do for the ECB”. There may also be a need for more collegial leadership from the euro area’s finance ministers, particularly if rapid coordinated action is required, something that can not be ruled out. One example could be a situation with a dramatic and substantial change in the exchange rate, another a financial crisis. A strong Eurogroup with a respected chairman should be positive in this regard and should facilitate an effective dialogue with the ECB. II. Allow me now to comment on the Stability and Growth Pact itself. It is not difficult of course to see economic arguments in favour of amending the Pact.