Stability pact must be flexible, says top US economist

By Karen Carstens

Date: 16/10/03

THE EU's Stability and Growth Pact should not be applied too rigidly, a top US economist has warned.

Martin Baily, a chief economic advisor to US former president Bill Clinton, said the pact should be applied "flexibly - at least for now", or the EU runs the risk of thwarting its own chances of success.

Speaking at an event organized by the Lisbon Council, a Brussels-based pressure group focusing on competitiveness issues, Baily drew a parallel with policies of the 1930s which plunged the US into the Great Depression.

"We don't want a Herbert Hoover-style economic policy," said Baily, referring to the then-US president.

Embattled Economic and Monetary Affairs Commissioner Pedro Solbes, who held talks with Baily during his visit, appears to agree. He has suggested France be given a one-year stay of execution to get its deficits in order, giving it a 2005 deadline.

Baily praised the "substantial effort at reform seen in Germany". "It is surprising to me that [Chancellor Gerhard] Schröder's reforms are as sweeping as they are," he said, adding that those of Roland Koch, the premier of the state of Hesse, "go even further".

Another success story, he added, was the dramatic decline in youth unemployment in the UK, where a 50% cut in benefits since 1996 had slashed the number of young unemployed "from about half a million to a few thousand".

Baily stressed, however, the "necessity for structural change" is more acute than ever in Europe. "One of the hardest things for Europe has been to embrace change rather than to inhibit it, to welcome restructuring even if it means short-term job losses."