Crumbling Stability

Despite two consecutive violations of the Maastricht Treaty, the German government is not reckoning with a punishment from Brussels. Finance Minister Hans Eichel didn't even bother sending along an apology when he notified the EU Commission that Germany's public deficit would exceed the euro-zone stability threshold of 3 percent of gross domestic product by 0.8 percentage point this year.

Germany already breached this limit in 2002 and may well suffer the same fate in 2004 because a deficit below 3 percent of GDP would presuppose 2 percent growth next year, something that most economists consider unlikely. And Germany is in "good" company: France is headed for a 4 percent deficit, and Italy, too, is living beyond its means. The Commission this week announced that the ballooning deficits of these three heavyweights will even raise the euro zone's average deficit above 3 percent.

As the Commission is increasing the pressure on the delinquents to stick to the stability pact - initially a German pet project - the latter demand that the constraints of the pact, which underpins the currency union, be loosened temporarily to help revive their economies. "The focus should currently be on fostering growth" rather than fiscal stability, Chancellor Gerhard Schröder said this week, pointing out that the Maastricht pact is officially called "stability and growth pact."

Indeed the pact does provide scope for budgetary excesses in tough economic times. But the growing nonchalance with which major European governments disregard this agreement, a sensible and necessary fundament for a union consisting of 12 - and soon even more - very diverse members, is worrying. It becomes plain once again that the EU, and the euro zone, are only theoretically supranational entities. In reality, national politicians always have the final say on any crucial issues.

This is why euro-zone governments can go on spending their way out of an economic lull and neglect urgently needed structural reforms to put their economies on a more sustainable footing. The euro-zone bigwigs should follow the better example of their smaller neighbors, who have mustered considerable fiscal discipline to earn their place in the monetary union. Otherwise, their deficit spending will seriously threaten the euro zone's economic recovery - and its borrowing costs.