Problems of implementing the stability and growth pact and the outlines of a possible solution

The Economic and Monetary Union (EMU) is a curious formation in terms of two components of monetary policy. While monetary policy is placed on the supranational plane, fiscal policy remains within national frames. According to the original concept of EMU, it was enough to regulate the extent of the current deficit. However, it emerged in 2003 that this kind of regulation is not capable of compelling member-states continually to keep their current-account deficit within 3 per cent of GDP. This has placed EMU in legal uncertainty and institutional tension. It has become clear that confinement of the budget deficit - in line with the rules - is growth dependent. GDP growth provides grounds for constant concern in these countries, as such and in comparative terms. The European Commission and the finance ministers of member-states have to find out rapidly how to devise adequate regulation, in practice and in terms of penalties for non-compliance.