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101 Proposals to reform the Stability and Growth Pact. Why so many? A Survey

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  • Jonas Fischer
  • Lars Jonung
  • Martin Larch

Abstract

The failure of key EU Member States to respect the requirements of the Stability and Growth Pact (SGP) a few years after its inception triggered a heated debate on how to reform the framework of fiscal policy coordination in the Economic and Monetary Union (EMU). This paper systematically analyzes 101 reform proposals presented by professional academic and non-academic economists prior to March 2005, when the Council of the European Union adopted a revised version of the SGP. Each proposal is characterized by a set of variables reflecting features such as the degree of modification of the SGP, the background of its author(s), the main aim attached to fiscal policy coordination in the EMU, the timing of the proposal and the type of proposal made. Using multivariate statistical analysis, roughly four different schools of thought concerning the reform of the SGP are identified. In line with the main findings of the political economy literature, all four schools of thought share the view that in the absence of specific rules fiscal policy would lead to excessive deficits and hence affect the conduct of the common monetary policy. However, beyond this common denominator, there is no consensus on how best to co-ordinate fiscal policy.Several explanations for the multitude of proposals are presented, the most important being the present lack of a consensus in the economics profession concerning the role of fiscal policy.

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Bibliographic Info

Paper provided by Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission in its series European Economy - Economic Papers with number 267.

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Length: 48 pages
Date of creation: Jan 2007
Date of revision:
Handle: RePEc:euf:ecopap:0267

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Keywords: Monetary union; euro; fiscal policy; Stability and Growth Pact; international policy coordination; EMU; European Union; Europe; Fischer; Jonung; Larch;

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  1. Antonio Fatás & Ilian Mihov, 2003. "The Case For Restricting Fiscal Policy Discretion," The Quarterly Journal of Economics, MIT Press, vol. 118(4), pages 1419-1447, November.
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  12. Charles Wyplosz, 2002. "Fiscal Policy: Institutions vs. Rules," IHEID Working Papers 03-2002, Economics Section, The Graduate Institute of International Studies.
  13. Hicks, J. R., 1979. "Critical Essays in Monetary Theory," OUP Catalogue, Oxford University Press, number 9780198284239.
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Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Var är statsvetarna?
    by Martin Flodén in Ekonomistas on 2011-09-22 07:12:44
  2. ECB måste visa vägen ut!
    by Martin Flodén in Ekonomistas on 2011-09-09 04:00:45
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Cited by:
  1. Christian Fahrholz & Cezary Wojcik, 2010. "The Bail-Out! Positive political economics of Greek-type crises in the EMU," CASE Network Studies and Analyses 413, CASE-Center for Social and Economic Research.
  2. Martin Larch & Paul van den Noord & Lars Jonung, 2010. "The Stability and Growth Pact: Lessons from the Great Recession," European Economy - Economic Papers 429, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission.
  3. Manfred Weber & Karl Knappe, 2007. "Fiscal policy in EMU after the reform of the european stability and growth pact," CESifo Forum, Ifo Institute for Economic Research at the University of Munich, vol. 8(4), pages 45-51, 01.
  4. Karsten Staehr, 2008. "The Maastricht Inflation Criterion and the New EU Members from Central and Eastern Europe," Bank of Estonia Working Papers 2008-04, Bank of Estonia, revised 30 Oct 2008.
  5. Michael D. Bordo & Agnieszka Markiewicz & Lars Jonung, 2011. "A Fiscal Union for the Euro: Some Lessons from History," NBER Working Papers 17380, National Bureau of Economic Research, Inc.
  6. Bodo Herzog, 2011. "EMU at Crossroads," CESifo Forum, Ifo Institute for Economic Research at the University of Munich, vol. 12(4), pages 23-29, December.
  7. Roel Beetsma & Heikki Oksanen, 2007. "Pension Systems, Ageing and the Stability and Growth Pact," European Economy - Economic Papers 289, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission.
  8. repec:ces:ifofor:v:12:y:2012:i:4:p:23-29 is not listed on IDEAS
  9. Wim Marneffe & Bas van Aarle & Wouter van der Wielen & Lode Vereeck, 2011. "The Impact of Fiscal Rules on Public Finances in the Euro Area," CESifo DICE Report, Ifo Institute for Economic Research at the University of Munich, vol. 9(3), pages 18-26, October.
  10. Ludger Schuknecht & Philippe Moutot & Philipp Rother & Jürgen Stark, 2011. "The Stability and Growth Pact: Crisis and Reform," CESifo DICE Report, Ifo Institute for Economic Research at the University of Munich, vol. 9(3), pages 10-18, October.
  11. Barry Eichengreen, 2010. "The Breakup of the Euro Area," NBER Chapters, in: Europe and the Euro, pages 11-51 National Bureau of Economic Research, Inc.
  12. Paolo Biraschi, . "Searching for the optimal EMU fiscal rule:an ex-post analysis of the SGP reform proposals," Working Papers wp2008-7, Department of the Treasury, Ministry of the Economy and of Finance.
  13. Heikki Oksanen, 2009. "Setting targets for government budgets in the pursuit of intergenerational equity," European Economy - Economic Papers 358, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission.
  14. Ali Bayar & Bram Smeets, 2009. "Government Deficits in the European Union: An Analysis of Entry and Exit Dynamics," CESifo Working Paper Series 2703, CESifo Group Munich.

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