The global financial crisis has resulted in a massive increase of public debt, and the European Stability

and Growth Pact (SGP) has been unable to prevent this trend. Presently, most European governments

respond by introducing tough budget consolidation programmes. The current crisis made blatantly

obvious that the institutional framework of the European Monetary Union (EMU) is inadequate. This fact

has initiated a scientific debate about the SGP. Most reform proposals concentrate on public debt, thus

intensifying the pact's traditional one-sided focus on public debt. But this strategy could prove to be

fatal, for economic developments in the short-run as well as for mid-term growth: The economic

recovery in the European countries would be curbed, without tackling the actual problems of the euro

area. Not only public debt is a continual threat to the stability of the EMU, private debt counts as well.

Thus the euro area's fundamental problems will not be solved without a reorganisation of the SGP. After

reviewing major reform proposals, the IMK will present its own concept for an innovative SGP reform

strategy. Our main focus will be on current account balances, because they are able to reveal perilous

trends both in the public as well as in the private sector.