Those who hastened to bury the Stability and Growth Pact (also known, courtesy of European Commission President Romano Prodi, as the «Stupid Pact»), will be well-advised to wait. Following one of its major rules, that budget deficits should not exceed 3 percent of a country’s gross domestic product (GDP), may have become, in practice, optional for some of the biggest countries, such as France and Germany, however, this is not true of smaller countries, especially the 10 newcomers that will join the EU in May of next year. As for Greece, it should not even be thinking about it, as the EU is about to remind it of the need to lower its huge public debt as fast as possible. Indeed, France will post a budget deficit in excess of 4 percent of its GDP in 2003 and over 3 percent in 2004. The German deficit will be slightly less excessive. Even John Snow, the US Treasury Secretary, backed the decision by French President Jacques Chirac and German Chancellor Gerhard Schroeder to persist with their excessive deficits. As for the markets, they hastened to show their support for the abandonment of fiscal discipline. Any way we look at it, size makes the difference indeed, especially when politics are mixed with economics. In any case, it would be a wrong move to begin important structural reforms under a regime of fiscal tightening. An increase in taxes, or cuts in spending, would completely break the already weak European economic machine. Without a doubt, recovery has been very slow in coming to the eurozone’s biggest members. The announcement of GDP figures for the second quarter of 2003 confirmed the worst fears: that Germany will post zero growth in 2003 and France only minimal growth. If we add the disappointing growth of Italy and the Netherlands, we get an idea of what bad shape most of the eurozone members find themselves in. There is no doubt that the appreciated euro, combined with the reluctance of consumers around the world to spend, has hurt the European economy. What was even more important was low demand, by both consumers and enterprises, within Europe itself. Capacity utilization is low and getting lower. This further encourages the deflationary trend. The importance the European Central Bank (ECB) attaches to capacity utilization is an indication that it may lower interest rates once again before the end of the year. In doing so, it will not be swayed by the continuing rise in oil prices. Even if no one expected the price of crude oil to linger at around $30 a barrel, the negative effect on GDP growth will not be so significant. The more-difficult-than-envisaged pacification of Iraq, where oil production has yet to exceed 1 million barrels per day; the return of China’s economy to its usual high growth rates and increased demand for oil in countries such as Iran and India account, to a large extent, on the upward pressure on oil prices. However, there is no concern that prices will reach even higher levels. The most important measure, however, would be to keep the euro at low levels. This is not certain. The euro may move downward until the end of the year, especially if the US recovery is confirmed. The rise of stock prices on both sides of the Atlantic will also help strengthen the dollar. No investor appears in any hurry to sell and lock in his or her already considerable gains. The valuations of most companies appear attractive (except in Greece), financial statements are showing profits and drawing back mutual funds’ money to equity funds. At this point, there are more good catches in the European markets and this will help the eurozone’s prospects next year. The above signs do not mean that the governments of the bigger countries will overdo their deficit policy. They have learned the harsh lesson after the 1973 oil crisis very well and know that it can be repeated again, destroying the best thing to happen in recent decades in Europe: the adoption of a common, strong currency.