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Interpreting the Close to Balance Provision of the Stability and Growth Pact: Legal and Conceptual Aspects

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  • Cronin, David

    (Central Bank and Financial Services Authority of Ireland)

Abstract

This paper sets out to interpret the close to balance provision of the Stability and Growth Pact and what it requires of member states in setting their budgetary targets. Among the conclusions reached are that a budgetary position of close to balance or in surplus can be objectively calculated by deducting a safety margin from the Treaty deficit limit of 3 per cent of GDP. It is argued that the safety margin should at least take account of those factors whose impact on the budget balance in the medium term can not be forecast with certainty. In this respect, both cyclical and random factors must be included in the safety margin. This safety margin can be thought of as a minimum safety margin - it indicates the safety margin required to avoid an excessive deficit in the medium term. It is also argued that an additional, supplementary margin for long-term factors should be considered.

Suggested Citation

  • Cronin, David, 2000. "Interpreting the Close to Balance Provision of the Stability and Growth Pact: Legal and Conceptual Aspects," Research Technical Papers 3/RT/00, Central Bank of Ireland.
  • Handle: RePEc:cbi:wpaper:3/rt/00
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    File URL: https://centralbank.ie/docs/default-source/publications/research-technical-papers/3rt00---interpreting-the-close-to-balance-provision-of-the-stability-and-growth-pact-legal-and-conceptual-aspects-(cronin).pdf?sfvrsn=4
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    References listed on IDEAS

    as
    1. Fabrizio Balassone & Daniela Monacelli, 2000. "EMU fiscal rules: Is there a gap?," Temi di discussione (Economic working papers) 375, Bank of Italy, Economic Research and International Relations Area.
    2. Fabrizio Balassone & Daniele Franco, 2000. "Public investment, the Stability Pact and the ‘golden rule’," Fiscal Studies, Institute for Fiscal Studies, pages 207-229.
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    Cited by:

    1. Honohan, Patrick, 2001. "European and International Constraints on Irish Fiscal Policy," Papers BP2002/2, Economic and Social Research Institute (ESRI).

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