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Replacing the Stability and Growth Pact?

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  • Charles Goodhart

Abstract

The euro-zone division between a single, federal monetary system and separate national fiscal systems is troublesome. The attempt to deal with it via the Stability and Growth Pact has not succeeded. Any hopes that the function of stabilizing asymmetric shocks might be shifted to the federal centre have been dashed by the referendums. I argue that the main concern over the event of a failure of a nation state in the euro-area to meet its debts is the contagious effect that that would currently have on its domestic financial intermediaries. So the proper response would be to enforce significant incremental capital requirements on financial institutions' holdings of such debt. Copyright IAES 2006

Suggested Citation

  • Charles Goodhart, 2006. "Replacing the Stability and Growth Pact?," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 34(3), pages 243-259, September.
    • Handle: RePEc:kap:atlecj:v:34:y:2006:i:3:p:243-259
    DOI: 10.1007/s11293-006-9014-1
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    References listed on IDEAS

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    1. Feldstein, Martin, 2005. "The euro and the stability pact," Journal of Policy Modeling, Elsevier, vol. 27(4), pages 421-426, June.
    2. Paul Masson & Jacques Melitz, 1991. "Fiscal policy independence in a European Monetary Union," Open Economies Review, Springer, vol. 2(2), pages 113-136, June.
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    Cited by:

    1. Charles Goodhart, 2007. "Currency Unions: Some Lessons from the Euro-Zone," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 35(1), pages 1-21, March.

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    More about this item

    Keywords

    stability and growth pact; asymmetric shocks; stabilization; financial crisis; capital adequacy; E63; O52;
    All these keywords.

    JEL classification:

    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy
    • O52 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Europe

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