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Will the SGP Ever Be Breached?

In: The Stability and Growth Pact

Author

Listed:
  • Ray Barrell
  • Karen Dury

Abstract

The European Union economies have embarked on a programme of economic transformation that changes their mode of governance. Rules for monetary policy-making have been fundamentally altered for euro area members and all fifteen are variously bound by Treaty or Protocol to fiscal programmes that have significant implications for the flexibility with which they operate stabilisation policy. The Stability and Growth Pact (SGP) puts clear limits on the size of deficits that can be run, and has a rather loose system of fines associated with it. In this chapter we focus on the likelihood of member countries breaching this criteria and the extent to which changes in monetary policy affect this outcome. In particular we investigate what effects different types of simple monetary policy rules have on a country’s ability to keep within the SGP criteria. One of the most common criticisms of the SGP is that it may be too binding in that governments will be unable to use fiscal stabilisation policies. This chapter throws light on the scope for fiscal activism in stabilising individual EMU economies.

Suggested Citation

  • Ray Barrell & Karen Dury, 2001. "Will the SGP Ever Be Breached?," Palgrave Macmillan Books, in: Anne Brunila & Marco Buti & Daniele Franco (ed.), The Stability and Growth Pact, chapter 10, pages 235-255, Palgrave Macmillan.
    • Handle: RePEc:pal:palchp:978-0-230-62926-4_10
    DOI: 10.1057/9780230629264_10
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    Citations

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    Cited by:

    1. Anne Brunila & Marco Buti & Jan In 'T Veld, 2003. "Fiscal Policy in Europe: How Effective Are Automatic Stabilisers?," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 30(1), pages 1-24, March.
    2. Lars Jonung, 2002. "EMU and the Euro - The First Ten Years. Challenges to the sustainability and price stability of the euro area - what does history tell us?," EUI-RSCAS Working Papers 46, European University Institute (EUI), Robert Schuman Centre of Advanced Studies (RSCAS).
    3. Balassone, Fabrizio & Franco, Daniele & Zotteri, Stefania, 2003. "Fiscal rules for sub-national governments: what lessons from EMU countries?," Sede de la CEPAL en Santiago (Estudios e Investigaciones) 34926, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL).
    4. Marco Buti & Sylvester Eijffinger & Daniele Franco, 2003. "Revisiting the Stability and Growth Pact: grand design or internal adjustment?," European Economy - Economic Papers 2008 - 2015 180, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
    5. Sell, Friedrich L., 2003. "Die Stabilitätsprogramme der EU: Anspruch und Wirklichkeit in den ersten vier Jahren der Europäischen Währungsunion," Working Papers in Economics 2003,2, Bundeswehr University Munich, Economic Research Group.
    6. Fabrizio Balassone & Daniele Franco, 2004. "EMU fiscal rules: new answers to old questions?," Chapters, in: Giuseppe Eusepi & Friedrich Schneider (ed.), Changing Institutions in the European Union, chapter 1, Edward Elgar Publishing.
    7. Lars Jonung, 2002. "EMU and the euro - the first 10 years. Challenges to the sustainability and price stability of the euro area - what does history tell us?," European Economy - Economic Papers 2008 - 2015 165, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
    8. Iain Begg & Waltraud Schelkle, 2004. "Can Fiscal Policy Co‐ordination be Made to Work Effectively?," Journal of Common Market Studies, Wiley Blackwell, vol. 42(5), pages 1047-1059, December.
    9. Rasmus Kattai & Alvar Kangur & Martti Randveer, 2003. "Automatic fiscal stabilisers in Estonia: the impact of economic fluctatios on general government budget balance," Bank of Estonia Working Papers 2003-11, Bank of Estonia, revised 10 Oct 2003.

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