In combination with transparent processes, including recurrent evaluations by national parliaments or in other arenas, this could put pressure on politicians to act. Is the Stability and Growth Pact not sufficient in itself? After all, it is designed to ensure fiscal discipline in the member countries. The answer here is clear; it could have been had the Pact only been followed. But now the situation is different. As the Pact has not been followed by the larger euro countries, there is a risk that the newcomers will take the same attitude. However, this could be a dangerous conclusion. It would be wiser to look at the issue the other way round. Both Germany and France attained the 3 per cent mark for the public deficit criterion by the narrowest of margins despite what was a global upturn. But they clearly did not do enough afterwards in terms of consolidation, despite intense pressure from many of the smaller countries. Today, this is a significant problem not only for the euro area as a whole; the countries themselves are also paying the price in terms of a deeper and longer downturn. This, if anything, is a warning to new euro adopters. Conclusions Having raised these complex issues, let me be very clear about my sentiments. I do not wish to see any new obstacles or separate rules for the new member states; equal treatment is essential.
This has been possible thanks to a high degree of wage flexibility as well as serious efforts to achieve fiscal consolidation. There is more reason for concern over some of the presently floating regimes as they move towards ERM II. Substantial fiscal slippages have occurred in some of these countries, bringing them far from the 3 per cent deficit requirement. In most cases the deterioration has not been a consequence of additional costs related to accession; neither has it mainly been the result of automatic stabilisers these are considerably smaller in acceding countries than in present EU members. Instead, the large cyclically adjusted - deficits reflect increases in public wages and so-called mandatory social spending, combined with a lack of expenditure cuts in other fields. Consolidation is planned to take place mainly in the medium to long term, and deficits are only set to be reduced to levels compatible with the convergence criteria towards the end of the decade (Fig. 1). Some of my central bank colleagues from the new member states argue that rapid entry into ERM II and the target of an early euro adoption is precisely what will force politicians in their respective countries to improve fiscal policy. In the words of one of my most eminent colleagues: “delay in entry equals delay in reforms”. Of course, I can understand this argument, and in the end it hinges on the political economy of each country. But using ERM II as a straightjacket is a risky strategy.