In hindsight it is somewhat ironic that the two countries which pushed through the stability and growth pact - France and Germany - should be the first to consistently break its terms.
Both countries will breach its deficit limit of 3 per cent of GDP for three years in a row and the EU Commission proposes that France should be given until 2005 to get its finances under control.
Some rules are clearly needed to control budgetary policy in the single currency area. The EU stability and growth pact says that member states should keep their budgets close to balance over the economic cycle and that the deficit should not exceed 3 per cent of Gross Domestic Product. The breaches by France and Germany have damaged the credibility of the pact. There is a case for reform, although it is important that changes do not lead to further difficulties.
Two areas need to be examined. The first relates to the general terms of the pact and whether it is appropriate, for example, to take into account national debt levels, as well as annual deficits. There is a case that low debt countries such as the Republic should be allowed to borrow slightly more to fund key infrastructure projects. In theory there is a good argument for this; in practice, however, there are still many issues here in terms of getting value for money from current investment levels, which will be highlighted tomorrow in a mid-term review by the Economic & Social Research Institute of the National Development Programme.
The second area needing consideration is the detailed application of the rules. This week it emerged that the EU finance ministers have objected to suggestions that the EU Commission gets new powers in terms of implementing the rules. There will be much debate on this, but whatever the outcome, it is essential that the process of policing the deficit procedures not become entirely politicised, as this would further undermine the pact.
There are also some very complex statistical issues to be decided in terms of how borrowing levels are calculated. It is important that the rules are not interpreted in a way that could hinder the kind of partnership projects between the private and public sector necessary to accelerate infrastructure provision.
These are issues of particular importance to Ireland. At a national level, it is essential that mechanisms be found to complete key programmes, within borrowing limits. Also, as the next president of the EU, Ireland will have to deal with the fall-out from the French and German decisions. It remains to be seen if this creates a general appetite for reform of the pact.