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Fiscal Rules in the European Monetary Union: A No-Entry Clause

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  • Giovannini, Alberto
  • Spaventa, Luigi

Abstract

The paper examines the possible motivations behind the plea for fiscal rules in the Delors Report. We argue that coordination problems arising from aggregate demand spillovers cannot be solved by means of budget rules and that in any case they are not important in Europe. We then discuss the notion of structural fiscal imbalances and show that potential solvency is a problem for some European countries, probably made more severe by EMU. Membership of countries with unsustainable positions may represent a risk for the stability of the union because of financial spillovers. Neither monetary discipline enforced by a `conservative' European Central Bank nor market discipline will by themselves prevent fiscal indiscipline or insulate the union from its consequences. Specific sanctions are needed to affect political choices by creating a trade-off between debt and monetary stability. The most effective sanction in our view would be a no-entry clause, such that membership is made contingent upon specifically defined changes in the fiscal positions of the countries concerned.

Suggested Citation

  • Giovannini, Alberto & Spaventa, Luigi, 1991. "Fiscal Rules in the European Monetary Union: A No-Entry Clause," CEPR Discussion Papers 516, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:516
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    Citations

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    Cited by:

    1. Jérôme Creel & Henri Sterdyniak, 1995. "Les déficits publics en Europe : causes, conséquences ou remèdes à la crise ?," Revue de l'OFCE, Programme National Persée, vol. 54(1), pages 57-100.
    2. Robert Holzmann & Yves Hervé & Roland Demmel, 1996. "The maastricht fiscal criteria: Required but ineffective?," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 23(1), pages 25-58, February.
    3. Varadarajan V. Chari & Patrick J. Kehoe, 2008. "Time Inconsistency and Free-Riding in a Monetary Union," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 40(7), pages 1329-1356, October.
    4. F. Passacantando, 1996. "Building an institutional framework for monetary stability: the case of Italy (1979-1994)," Banca Nazionale del Lavoro Quarterly Review, Banca Nazionale del Lavoro, vol. 49(196), pages 83-132.
    5. Anthony J. Pellechio & Saqib Rizavi & Phebby Kufa, 2003. "Fiscal Sustainability and Policy Issues in the Eastern Caribbean Currency Union," IMF Working Papers 03/162, International Monetary Fund.
    6. Catherine Bruno & Jacques Le Cacheux & Catherine Mathieu, 1991. "L'Union monétaire européenne : état des lieux, projets et enjeux," Revue de l'OFCE, Programme National Persée, vol. 38(1), pages 93-142.
    7. M. Mar㈠& M. Sarcinelli, 1994. "The European Union: how to assign the functions of government," BNL Quarterly Review, Banca Nazionale del Lavoro, vol. 47(191), pages 341-377.
    8. Heinemann, Friedrich, 1994. "Verschuldungsanreize in der Wirtschafts- und Währungsunion," ZEW Discussion Papers 94-02, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
    9. M. Mar㈠& M. Sarcinelli, 1994. "The European Union: how to assign the functions of government," Banca Nazionale del Lavoro Quarterly Review, Banca Nazionale del Lavoro, vol. 47(191), pages 341-377.
    10. Jacques Mélitz, 1991. "Brussels on a single money," Open Economies Review, Springer, vol. 2(3), pages 323-336, October.
    11. F. Passacantando, 1996. "Building an institutional framework for monetary stability: the case of Italy (1979-1994)," BNL Quarterly Review, Banca Nazionale del Lavoro, vol. 49(196), pages 83-132.

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