CNB Bank Board Meeting - the Czech National Bank's position on the revision of the Stability and Growth Pact

At its meeting today, the CNB Bank Board discussed the reform of the Stability and Growth Pact approved by the European Council on 22-23 March 2005. The Bank Board noted with concern that the changes will significantly weaken the Pact, particularly with regard to its transparency, the enforcement of its objectives and the principle of equal treatment. The changes may also endanger the stable and non-inflationary trend in the European Union.

It is the primary responsibility and task of any government to be aware of the macroeconomic importance of sound public budgets. In this respect, the Pact's rules merely create a framework for co-ordinating fiscal policy at the European level. They are, however, crucial for the successful functioning of the Economic and Monetary Union.

Despite some reservations regarding the relaxation of the definition and enforcement of the Pact' s objectives (the consideration of numerous factors when setting the medium-term fiscal policy objective, the granting of some exceptions as regards exceeding the 3% deficit limit, the possibility of extending the deadlines for correcting excessive deficits, etc.) the CNB welcomes the strengthening of the preventive part of the Pact, which is directed at responsible fiscal policy in good times. This may contribute to a strengthening of fiscal discipline at the European level.

The Czech National Bank does not share the view that the revision of the Pact might result in earlier introduction of the euro by the Czech Republic as a consequence of the softening of fiscal targets. Compliance with the Maastricht criteria in the fiscal area is a necessary but not sufficient condition for a smooth introduction of the euro. The decision to introduce the euro should be a result of an overall examination of the economic conditions, including an evaluation of the public budgets' capacity to behave responsibly in the future and to contribute to economic stability. With regard to the Czech Republic's own interests and to future fulfilment of the Pact's objectives, the consolidation of Czech public finances should continue.

The Czech National Bank will keep monitoring and carefully analysing the issues associated with the fiscal rules and the observance thereof in the European Union.