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The Stability and Growth Pact: Crisis and Reform

  • Ludger Schuknecht
  • Philippe Moutot
  • Philipp Rother
  • Jürgen Stark

The sovereign debt crisis in the euro area is a symptom of policy failures and deficiencies in – among other things – fiscal policy coordination. The first nine years of the euro were not used effectively in order to improve public finances, while the Stability and Growth Pact was watered down. Spillovers from the financial and economic crisis compounded fiscal difficulties in the euro area, especially in certain member countries. This paper looks back at the history of fiscal policies and rules in Economic and Monetary Union (EMU). It makes proposals to strengthen fiscal policy governance that go well beyond the legislation set to be adopted in autumn 2011. The authors consider these additional governance measures to be essential for effective policy coordination and sound public finances in the future. JEL Classification: E52, E58

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Article provided by Ifo Institute for Economic Research at the University of Munich in its journal DICE.

Volume (Year): 9 (2011)
Issue (Month): 3 (October)
Pages: 10-18

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Handle: RePEc:ces:ifodic:v:9:y:2011:i:3:p:10-18
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  1. Holm-Hadulla, Fédéric & Hauptmeier, Sebastian & Rother, Philipp, 2010. "The impact of numerical expenditure rules on budgetary discipline over the cycle," Working Paper Series 1169, European Central Bank.
  2. Lars Jonung & Eoin Drea, 2009. "The euro: It can't happen, It's a bad idea, It won't last. US economists on the EMU, 1989-2002," European Economy - Economic Papers 395, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
  3. Schuknecht, Ludger & Hauptmeier, Sebastian & Sanchez Fuéntes, Jésus, 2011. "Towards Expenditure Rules and Fiscal Sanity in the Euro Area," Annual Conference 2011 (Frankfurt, Main): The Order of the World Economy - Lessons from the Crisis 48693, Verein für Socialpolitik / German Economic Association.
  4. Larch, Martin & Jonung, Lars & Fischer, Jonas, 2008. "101 proposals to reform the Stability and Growth Pact. Why so many? A survey," MPRA Paper 20592, University Library of Munich, Germany.
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