Andreas Rinke, Gavin Jones

BERLIN/ROME / (Reuters) – One is the German conservative that insisted on the euro being based on strict budget rules. While the other was the founder father of Italy’s center-left, and famously called those rules stupid.

Reuters interviews Romano Prodi and Theo Waigel as key figures in the 1999 euro birth, as part of major reforms underway by the European Union’s Stability and Growth Pact for fiscal governance.

Prodi was the European Commission’s chief during the 2000s. His job was to oversee the debt and deficit rules that Waigel, the former German Finance Minister, had helped create a few years before.

Despite coming from opposing ends of Europe’s political spectrum, it was unlikely that they would see the rules in the same light. Even though they are both older than their counterparts, this is still a problem.

These historical views are an overview of how the Pact worked and should be improved.

DID THE RULES FAIL?

Waigel said that “all members, even the poorer ones have benefitted from monetary Union. Stability Pact provided the answers to climate and fiscal policies. This isn’t a matter of whether a country meets the criteria in a year. To avoid friction, it must remain that way.

Prodi: “It is hard to answer. The instrument was defective because it didn’t have economic support. This is why it was called stupid. Although it served a useful purpose (to warn countries about overspending), it quickly became problematic when there were exceptions. It was then inapplicable.

SHOULD IT BE REFORMED – AND IF SO HOW?

Prodi: “It’s known as the stability and growth agreement, so it must not only focus on stability but also increase productivity in future. My suggestions are to increase flexibility and to give special treatment to investment that increases productivity. I also suggest special treatment to those investments required to meet our climate goals.

Waigel said: “It would make a huge mistake to change the rules at this time. This is also my caution for the (German) Federal Government. Although the Stability Pact is flexible enough, it doesn’t need to be loosened. We need to have surpluses in our national government budgets due to the massive demographic shifts taking place.”

SHOULD A BUDGET LEEWAY BE ALLOWED FOR CLIMATE CHange?

Prodi: To reach net zero in 2050, Prodi says that this ambitious goal will require huge investments. This is to modernize our industry. These should all be considered under the new rules.

Waigel: “Germany has refrained from the demand to exclude the costs of its (1990) reunification – even though it has spent 4 to 5 percent of its economic output annually on it. We can handle such a challenge. Other countries will also have to comply with these rules.

Edited and compiled by Mark John, Toby Chopra