It is normal for official agencies - like the rest of us - to shift the blame onto others when things go wrong. Even if there is no immediate crisis, there is such a thing as shifting the blame in anticipation. This applies particularly to central bankers, who like to blame government fiscal policy for any untoward inflation or deflation. In the past they also tried to put the blame on union militancy. But this is becoming more difficult now that centralised pay bargaining is in decline in so many countries.

In the case of Germany, there was an additional reason for insisting on strict fiscal commitments as a condition for abandoning the D Mark and joining the Euro. This was a fear that supposedly profligate southern European countries would find one pretext or another for trying to push Germany and other northern members into financing excessive budget deficits.

In principle this has nothing to do with Monetary Union. But he German fear was that these countries would blame their problems on EMU and insist on German finance to help them survive.

These ingredients are undoubtedly part of the explanation for the European Growth and Stability Pact, which accompanied the inauguration of the Euro at the beginning of 1999, and which many economists regard as either excessively strict or at the very least badly designed.

Nevertheless US strictures on European fiscal puritanism should not be taken at face value. When one hears highly placed Fed officials complaining about this in private one’s immediate reaction is to ask "Why do they care so much?".

It is not all that difficult to see why. Suppose that the Euro countries change their policy mix in favour of a laxer fiscal policy and a tighter monetary one. The effect would be to attract funds into the Euro countries and for the Euro to rise. This would of course tend to weaken the dollar which has risen so much in the late 1990s and which contributes to the large US current account deficit and - more practically - increases the dissatisfaction of those manufacturing concerns and their unions which are heavily dependent on international trade. Although they tried not to shout it from the housetops, most US policy officials thought that the dollar was too high at the start of the summer of 1999.

The Euro Stability Pact is not quite as crude as sometimes maintained. The greatest publicity has been given to the three per cent deficit limit, at which the alarm bells ring and sanctions can be imposed. In fact the stated aim is not a three per cent deficit but a budget balance or preferably surplus. The point of the three per cent deficit limit is that this should give some scope for the built-in-fiscal stabilisers to work during a recession. The framers of the Pact thought this would be sufficient for normal recessions.

There are other safety catches. If GDP actually falls by over 0.75 per cent in a year, exemption from the "Excess Deficit Procedure" can be granted by the EU Council of Finance Ministers. If GDP falls by more than two per cent exemption is automatically granted. A further mitigation is that corrective action and punitive sanctions both require the approval of the Council of Finance ministers, who are unlikely to censure themselves if they are all hit by the same chilly wind.

Unfortunately, much of the public discussion in political and financial circles ignores the small print. For instance Italy was roundly condemned in the financial press, and by members of other governments speaking in private, for insisting on allowing its deficit targets for 1999 to rise to 2.7 per cent compared with previous estimates of 2.4 or 2.5 per cent of GDP. Yet Italy is - on published figures at least - the nearest thing to the sick man of Europe. It is at the very least suffering from a growth recession, with output rising less than potential and a large margin of unemployment and unused capacity.

Critics like Fed Governor Laurence Meyer do have a point when they indicate that the official mitigations would not be enough in case of a serious and prolonged recession. The Stability Pact provides only for the lifting of the ceiling for a year at a time; and it has to be accompanied by a plan for getting back towards balance by the offending country.

Yet there are some particularly good reasons for the reluctance of European countries to countenance discretionary fiscal action in the event of recession. Most of them have high debt ratios, to which they are rightly reluctant to add further, irrespective of the Pact. Moreover they all face looming social security problems in the first decades of the next century, when they are will have to cope with ageing populations and insufficient rates of contribution to finance future pension payments. They are thus understandably reluctant to start the new century with a heavy load of deficit and debts.

A recent paper by a senior group of British economists (the Clare Group published in the July issue of the National Institute of Economic and Social Research Review) maintains that at the very least Finance Ministers should be much more explicit that their fiscal objectives are structural ones and that they should lay out in advance how much their balances are likely to swing into deficit during a recession - and surely - I would add - into surplus during a boom.

A good deal of grumbling is premature. US East Coast economists and British Cambridge and Oxford ones have lost influence and prestige because they have cried recession too often in the past - like the boy who cried wolf, and who was not believed when the wolf really did appear.

The situation in the summer of 1999 was one of an overheated US bubble economy and a gathering recovery in Europe and Japan. The UK has had a soft landing after the Bank of England inspired slowdown and is now resuming pretty normal growth. Moreover the ECB is quite right to maintain that the bulk of European unemployment is structural - due mainly to excessive employment costs - and that demand stimulus is not the main cure.

All this of course may change, especially if and when the US bubble bursts. It would obviously be better if the Euro countries were to enter a recession from a position of budget balance instead of the moderate deficits that now look likely. But these should not be exaggerated.

Germany, France and Italy are expected to have deficits this year, in crude terms, of around two to three per cent of GDP. Some of this is due to the continued existence of a capacity gap. After adjusting for the business cycle, the OECD estimate that Germany and Italy have structural deficits of 1 per cent of GDP and France of only 2 per cent. Moreover the primary balances, which indicate whether deficits will increase or decline in the very long run, because they exclude interest from the national debt, are all moderately positive.

For the time being European governments are quite right to stick to plans for further fiscal consolidation to see them through into the next century. But this need not prevent them putting more emphasis on the built-in-stabilisers allowed by the stability pacts. We all know that the Pact would be shelved in a severe international recession. But this is a danger to be guarded against, not a spectre to determine policy all the time.

In the long run governments like households face a fiscal constraint. But there is much too much emphasis both by "hawks" and by "doves" on fiscal policy, as an instrument for short and medium term economic management, used in a discretionary way.

In the last resort both inflation and depression are monetary phenomena. It is not a coincidence that Japan’s economic stagnation of the last few years has coincided with a big drop in monetary growth. The ultimate safeguard against the fallout from an international recession is a European determination to maintain monetary growth. What critics of the ECB should be aiming at is the lack of any public discussion of how to maintain such monetary growth in the event of nominal interest rates are reduced to rock bottom, but remain still too high in real terms.