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The Stability and Growth Pact: Past Performance and Future Reforms

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  • Amy K. Filipek

    ()
    (Department of Economics, The College of William and Mary)

  • Till Schreiber

    ()
    (Department of Economics, The College of William and Mary)

Abstract

The ‘Stability and Growth Pact’ aims to constrain excessive fiscal deficits by member countries in the European Monetary Union. It identifies and prescribes sanctions for countries that breach the Maastricht deficit and debt ceilings. Under strong criticism for its apparent favoritism of Germany and France, the SGP was reformed in 2005, after which its deficit procedures became more responsive to the economic climate and were individualized to the country’s circumstances. This paper explores the reformed SGP’s performance, especially in light of the recent Greek debt and global financial crises, and proposes further changes to the Pact, while paying special attention to political feasibility. In it we suggest reforms to the SGP that focus on national ownership of fiscal discipline and an extension of Medium Term Objectives to include a consideration of large external imbalances. We show that the latter can provide an early warning signal for potential future difficulties for public finances.

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Bibliographic Info

Paper provided by Department of Economics, College of William and Mary in its series Working Papers with number 97.

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Length: 35 pages
Date of creation: 16 Sep 2010
Date of revision:
Handle: RePEc:cwm:wpaper:97

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Keywords: European Monetary Union; fiscal adjustment; external imbalances; global financial crisis;

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