The European Union's stability and growth pact has failed. No other serious conclusion can be drawn from the decision by EU finance ministers on France and Germany's budget deficits. The essential facts are not difficult to understand. The pact imposes financial sanctions on nations that run budget deficits of more than 3% of their total gross domestic product. France and Germany have broken those rules this year. This week the finance ministers allowed them to get away with the breaches, by allowing the deficits to continue if economic growth remains low. The principle at stake here is no more difficult to understand than the facts. If you have rules, you either enforce them or you change them. The ministers have funked both options. Instead they have allowed the rules to be broken while doing nothing about rewriting them. By backing away from sanctions against the two nations, the finance ministers are conniving in a political and economic fiction. That is no way to run the European Union. In substance, of course, the finance ministers got it right this week. Financial discipline, always desirable in itself, must never become so rigid as to kill the economic activity that it seeks to nurture. Under the pact, France and Germany should have been penalised for spending money they do not have when times are hard. Yet this central principle of the pact ignores the reality that when times improve those deficits can be redressed - as a set of marginally encouraging indicators from Germany yesterday suggest they soon may. The human reality behind the theory is that governments are right to spend during recession - partly because a society has a collective responsibility to protect its most vulnerable members in times of hardship, and partly because to do so is to create a stimulus which assists economic recovery. Either way, manageable deficits are the right policy during recession. The problem is that the excessively strict rules do not permit it.  The answer, naturally enough, is to change the rules so that income and expenditure balance over the economic cycle - the good times replenishing the spending that is necessary in the bad times. The ministers, however, continue to shy away from that essential course. As a result, the EU commission is left wringing its hands on behalf of breaches of a system which has proved itself to be unworkable. But they should not spend their time denouncing the finance ministers for doing a sensible thing. They should spend it demanding that the ministers should follow up the logic of their own action. They should press governments to rewrite the pact in a more sensible and less doctrinaire manner.  This, though, is something that too many governments and too many in the commission are reluctant to do. They are reluctant because they see loosening the rules as a challenge to the integrationist and welfarist form of the European project to which many of them are intellectually and emotionally committed. This is an honourable commitment, and it is an essential component of the kind of Europe that progressive governments should be trying to construct. Ministers like Gordon Brown should not mock or misrepresent it, especially by playing to rightwing galleries. But ever closer union is not the only component of the project. Europe has always been and will always be a balance between the centralised and integrationist on the one hand and the devolved and pluralist on the other. In a different part of the European forest, that is what the whole debate on the EU constitution is about and how it must be judged. Both the stability pact and the constitution will only work if governments and ministers are honest about them. Dishonesty has made a mockery of the one. It must not be allowed to make a mockery of the other. Classification Language: ENGLISH Subject: GOVERNMENT BUDGETS (90%); EUROPEAN UNION (90%); PUBLIC FINANCE (90%); ECONOMIC CONDITIONS (90%); ECONOMIC GROWTH (90%); PUBLIC FINANCE AGENCIES & TREASURIES (90%); RECESSION (89%); ECONOMIC POLICY (89%); INTERNATIONAL ECONOMIC ORGANIZATIONS (89%); ECONOMIC NEWS (89%); EUROPEAN UNION INSTITUTIONS (78%); ECONOMIC RECOVERY (78%); GROSS DOMESTIC PRODUCT (78%); ECONOMICS (73%); ECONOMIC DEVELOPMENT (70%) Company: EUROPEAN UNION LEISURE LTD (92%); EUROPEAN UNION LEISURE LTD (92%); EUROPEAN UNION (94%); EUROPEAN UNION (94%) Organization: EUROPEAN UNION (94%); EUROPEAN UNION (94%); EUROPEAN UNION (94%); EUROPEAN UNION (94%) Industry: GOVERNMENT BUDGETS (90%); BUDGETS (90%); PUBLIC FINANCE AGENCIES & TREASURIES (90%); BUDGET DEFICITS (77%) Geographic: GERMANY (94%); FRANCE (93%); EUROPE (92%); EUROPEAN UNION MEMBER STATES (92%)