The stability and growth pact : an eventful history
When it was adopted in 1997 the stability and growth pact was considered as one of the cornerstones of the European monetary union. However, against the background of the economic downturn starting at the turn of the century, this perception changed and some observers criticised the pact for unduly constraining governments’ fiscal room for manoeuvre. This sparked a long debate on the appropriateness of the fiscal rules in the monetary union that has finally ended in March 2005 when a political agreement was reached in the Council of the European Union that announces substantial changes to the pact. This article first recalls the reasons for fiscal rules, especially in a monetary union with a fragmented budgetary policy, and the main provisions of the original pact. It then shows that despite the strengthening of the fiscal rules nearly all EU-15 Member States have significantly relaxed budgetary discipline after 1997, i.e. the year in which compliance with the Maastricht convergence criteria was tested, which led to significant budgetary slippages in a number of countries. It is argued that this is due to specific institutional, political and statistical factors. Finally, the reform of the pact is assessed. Without prejudging the application of the new framework, the fiscal rules are found to be significantly weakened and there is a clear shift towards a more judgement-based institutional framework.
Volume (Year): (2005)
Issue (Month): II (June)
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