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This article takes a somewhat unusual line on the Stability and Growth Pact. While the Pact clearly suffers from very considerable defects, in fact many of the problems encountered in the area of fiscal policy originate elsewhere, notably in monetary policy and in the neglected problems of inter-country adjustment in a common currency area. The linkáges between these areas and the Pact, with its asymmetrical form of operation, are discussed, along with reform ideas for the Pact. The authors conclude that a greater focus on national inflation targets - implying stronger coordination with wage trends - rather than the present focus on unattainable deficit targets is an avenue that needs to be explored.
