Reform of the European stability and growth pact is a key issue in European economic and financial affairs. Last autumn, Joaqún Almunia, the European commissioner responsible, put forward some constructive ideas; Jacques Chirac of France and Silvio Berlusconi of Italy have also made contributions to the debate. Jean-Claude Juncker of Luxembourg aims to complete the review of the pact during his country's presidency of the European Union. Difficult negotiations await. But no one is better placed than the Luxembourg prime minister, one of the fathers of the pact and a man of tremendous experience, to bring the talks to a successful conclusion.

Reform of the "excessive deficit procedure" will be the cornerstone. Strategies for reform must reflect the fact that it is not just a stability pact, but also a growth pact. Whether a fiscal policy is "right" and promotes stability and growth equally cannot be measured solely by compliance with the deficit reference value of 3 per cent of gross domestic product. This indicator is inadequate to deal with the complex realities of fiscal policy. We must recognise that the goal of consolidating public budgets may well conflict in the short term with the goal of enhancing the potential for economic growth. A reformed pact must take this conflict into account, as well as the need to bring improved growth and employment opportunities into line in the long term with sound public budgets.