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The Euro and the Stability Pact

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  • Martin Feldstein

Abstract

This paper begins by discussing the inherent conflict between the simultaneous existence of a single currency for the countries of the European Economic and Monetary Union (EMU) and the independent fiscal policies of those countries. The Stability and Growth Pact was an attempt to reconcile that conflict. I describe how EMU governments have chosen to ignore the Stability Pact's constraint on budget deficits and how they sought to undermine it by changing the rules themselves. The final part of the paper describes the actual resolution of the issue by the agreement reached at the end of March 2005 by the European Council. The new policy effectively abandons the Stability Pact and leaves the way open to much larger sustained deficits.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 11249.

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Date of creation: Apr 2005
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Publication status: published as Feldstein, Martin. "The Euro And The Stability Pact," Journal of Policy Modeling, 2005, v27(4,Jun), 421-426.
Handle: RePEc:nbr:nberwo:11249

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Cited by:
  1. Ferré Carracedo, Montserrat, 2011. "The effects of uncertainty about countries' compliance with the Stability and Growth Pact," Working Papers 2072/169686, Universitat Rovira i Virgili, Department of Economics.
  2. Bernadeta Baran, 2012. "Effectiveness of Fiscal Policy Coordination Rules in the Monetary Union," Equilibrium, Uniwersytet Mikolaja Kopernika, vol. 7, pages 73-91.
  3. Bernd Huber & Marco Runkel, 2005. "Interregional Redistribution and Budget Institutions under Asymmetric Information," CESifo Working Paper Series 1491, CESifo Group Munich.
  4. Bonatti, Luigi & Cristini, Annalisa, 2008. "Breaking the Stability Pact: Was it predictable?," Journal of Policy Modeling, Elsevier, Elsevier, vol. 30(5), pages 793-810.
  5. Drazen Derado, 2009. "Financial Integration and Financial Crisis: Croatia Approaching The EMU," Financial Theory and Practice, Institute of Public Finance, Institute of Public Finance, vol. 33(3), pages 299-328.
  6. Alberto Bagnai, 2014. "Un external compact per rilanciare l'Europa," a/ Working Papers Series, Italian Association for the Study of Economic Asymmetries, Rome (Italy) 1401, Italian Association for the Study of Economic Asymmetries, Rome (Italy).
  7. Dietrichson, Jens & Ellegård, Lina Maria, 2011. "Institutions promoting budgetary discipline: evidence from Swedish municipalities," Working Papers, Lund University, Department of Economics 2011:8, Lund University, Department of Economics, revised 20 Dec 2012.
  8. Muller, Adrian & Sterner, Thomas, 2009. "Output and Abatement Effects of Allocation Readjustment in Permit Trade," Working Papers in Economics 413, University of Gothenburg, Department of Economics.
  9. Kocenda, Evzen & Kutan, Ali M. & Yigit, Taner M., 2008. "Fiscal convergence in the European Union," The North American Journal of Economics and Finance, Elsevier, Elsevier, vol. 19(3), pages 319-330, December.
  10. Richard Morris & Hedwig Ongena & Ludger Schuknecht, 2006. "The reform and implementation of the Stability and Growth Pact," Occasional Paper Series 47, European Central Bank.
  11. Golinelli, Roberto & Momigliano, Sandro, 2006. "Real-time determinants of fiscal policies in the euro area," Journal of Policy Modeling, Elsevier, Elsevier, vol. 28(9), pages 943-964, December.
  12. Martin Larch & Jo�o Nogueira Martins, 2007. "Fiscal indicators - Proceedings of the the Directorate-General for Economic and Financial Affairs Workshop held on 22 September 2006 in Brussels," European Economy - Economic Papers, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission 297, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission.
  13. Vyprachticka, Terezie, 2011. "Could the Stability and Growth Pact be Substituted by the Financial Markets?," European Integration online Papers (EIoP), European Community Studies Association Austria (ECSA-A), European Community Studies Association Austria (ECSA-A), vol. 15, 09.
  14. Landon, Stuart & Smith, Constance E., 2007. "Government debt spillovers in a monetary union," The North American Journal of Economics and Finance, Elsevier, Elsevier, vol. 18(2), pages 135-154, August.
  15. Paolo Manasse, 2005. "Deficit Limits, Budget Rules and Fiscal Policy," IMF Working Papers 05/120, International Monetary Fund.
  16. Feldstein, Martin, 2013. "Coordination in the European Union," Journal of Policy Modeling, Elsevier, Elsevier, vol. 35(3), pages 434-439.
  17. Győrffy, Dóra, 2008. "Költségvetési kiigazítás és növekedés az Európai Unióban. Tanulságok Magyarország számára
    [Budget adjustment and growth in the European Union lessons for Hungary]
    ," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(11), pages 962-986.
  18. Roberto Golinelli & Sandro Momigliano, 2006. "Real-time determinants of fiscal policies in the euro area: Fiscal rules, cyclical conditions and elections," Temi di discussione (Economic working papers), Bank of Italy, Economic Research and International Relations Area 609, Bank of Italy, Economic Research and International Relations Area.

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