IDEAS home Printed from https://ideas.repec.org/p/cwm/wpaper/97.html
   My bibliography  Save this paper

The Stability and Growth Pact: Past Performance and Future Reforms

Author

Listed:
  • Amy K. Filipek

    (Department of Economics, The College of William and Mary)

  • Till Schreiber

    (Department of Economics, The College of William and Mary)

Abstract

The ‘Stability and Growth Pact’ aims to constrain excessive fiscal deficits by member countries in the European Monetary Union. It identifies and prescribes sanctions for countries that breach the Maastricht deficit and debt ceilings. Under strong criticism for its apparent favoritism of Germany and France, the SGP was reformed in 2005, after which its deficit procedures became more responsive to the economic climate and were individualized to the country’s circumstances. This paper explores the reformed SGP’s performance, especially in light of the recent Greek debt and global financial crises, and proposes further changes to the Pact, while paying special attention to political feasibility. In it we suggest reforms to the SGP that focus on national ownership of fiscal discipline and an extension of Medium Term Objectives to include a consideration of large external imbalances. We show that the latter can provide an early warning signal for potential future difficulties for public finances.

Suggested Citation

  • Amy K. Filipek & Till Schreiber, 2010. "The Stability and Growth Pact: Past Performance and Future Reforms," Working Papers 97, Department of Economics, College of William and Mary.
    • Handle: RePEc:cwm:wpaper:97
    as

    Download full text from publisher

    File URL: http://economics.wm.edu/wp/cwm_wp97.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Alberto Alesina & Filipe R. Campante & Guido Tabellini, 2008. "Why is Fiscal Policy Often Procyclical?," Journal of the European Economic Association, MIT Press, vol. 6(5), pages 1006-1036, September.
    2. Matthew B. Canzoneri & Behzad T. Diba, 2001. "The SGP: Delicate Balance or Albatross?," Palgrave Macmillan Books, in: Anne Brunila & Marco Buti & Daniele Franco (ed.), The Stability and Growth Pact, chapter 3, pages 53-74, Palgrave Macmillan.
    3. Alessandro Missale, 2001. "Public Debt Management and the SGP," Palgrave Macmillan Books, in: Anne Brunila & Marco Buti & Daniele Franco (ed.), The Stability and Growth Pact, chapter 14, pages 344-368, Palgrave Macmillan.
    4. Eichengreen, Barry, 2005. "Europe, the euro and the ECB: Monetary success, fiscal failure," Journal of Policy Modeling, Elsevier, vol. 27(4), pages 427-439, June.
    5. Casella, Alessandra, 2001. "Market mechanisms for policy decisions: Tools for the European Union," European Economic Review, Elsevier, vol. 45(4-6), pages 995-1006, May.
    6. Buti, M. & Eijffinger, S.C.W. & Franco, D., 2003. "Revisiting the Stability and Growth Pact : Grand Design or Internal Adjustment?," Other publications TiSEM 2e5a01d9-9a1f-492d-995f-a, Tilburg University, School of Economics and Management.
    7. repec:cto:journl:v:24:y:2004:i:1-2:p:57-69 is not listed on IDEAS
    8. Casella, Alessandra, 2001. "Market Mechanisms for Policy Decisions," CEPR Discussion Papers 2667, C.E.P.R. Discussion Papers.
    9. Carmen M. Reinhart & Kenneth S. Rogoff, 2014. "This Time is Different: A Panoramic View of Eight Centuries of Financial Crises," Annals of Economics and Finance, Society for AEF, vol. 15(2), pages 215-268, November.
    10. Andres Velasco, 1999. "A Model of Endogenous Fiscal Deficits and Delayed Fiscal Reforms," NBER Chapters, in: Fiscal Institutions and Fiscal Performance, pages 37-58, National Bureau of Economic Research, Inc.
    11. Roel M. W. J. Beetsma & Xavier Debrun, 2004. "Reconciling Stability and Growth: Smart Pacts and Structural Reforms," IMF Staff Papers, Palgrave Macmillan, vol. 51(3), pages 431-456, November.
    12. M. Ayhan Kose & Eswar S. Prasad & Marco E. Terrones, 2005. "Growth and Volatility in an Era of Globalization," IMF Staff Papers, Palgrave Macmillan, vol. 52(si), pages 31-63.
    13. von Hagen, Jurgen & Harden, Ian J., 1995. "Budget processes and commitment to fiscal discipline," European Economic Review, Elsevier, vol. 39(3-4), pages 771-779, April.
    14. Agustín Bénétrix & Philip Lane, 2010. "Fiscal Shocks and The Sectoral Composition of Output," Open Economies Review, Springer, vol. 21(3), pages 335-350, July.
    15. Carmen M. Reinhart & Kenneth S. Rogoff, 2009. "Varieties of Crises and Their Dates," Introductory Chapters, in: This Time Is Different: Eight Centuries of Financial Folly, Princeton University Press.
    16. N. Holinski & C.J.M. Kool & J. Muysken, 2010. "Origins of persistent macroeconomic imbalances in the Euro area," Working Papers 10-12, Utrecht School of Economics.
    17. International Monetary Fund, 2005. "Fiscal Transparency and Economic Outcomes," IMF Working Papers 2005/225, International Monetary Fund.
    18. Chari, V.V. & Kehoe, Patrick J., 2007. "On the need for fiscal constraints in a monetary union," Journal of Monetary Economics, Elsevier, vol. 54(8), pages 2399-2408, November.
    19. Marco Buti, 2006. "Will the new stability and growth pact succeed? An economic and political perspective," European Economy - Economic Papers 2008 - 2015 241, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
    20. Vito Tanzi, 2004. "The Stability and Growth Pact: Its Role and Future," Cato Journal, Cato Journal, Cato Institute, vol. 24(1-2), pages 57-69, Spring/Su.
    21. Astrid Lemmer & Dan Stegarescu, 2009. "Revenue windfalls and expenditure slippages: Disappointing implementation of the reformed stability and growth pact," Intereconomics: Review of European Economic Policy, Springer;ZBW - Leibniz Information Centre for Economics;Centre for European Policy Studies (CEPS), vol. 44(3), pages 159-165, May.
    22. Sixten Korkman, 2001. "Fiscal Policy Coordination in EMU: Should it Go Beyond the SGP?," Palgrave Macmillan Books, in: Anne Brunila & Marco Buti & Daniele Franco (ed.), The Stability and Growth Pact, chapter 12, pages 287-310, Palgrave Macmillan.
    23. Rui Alves & Oscar Afonso, 2007. "The "New" Stability and Growth Pact: More Flexible, Less Stupid?," Intereconomics: Review of European Economic Policy, Springer;ZBW - Leibniz Information Centre for Economics;Centre for European Policy Studies (CEPS), vol. 42(4), pages 218-225, July.
    24. Holger Zemanek & Ansgar Belke & Gunther Schnabl, 2010. "Current account balances and structural adjustment in the euro area," International Economics and Economic Policy, Springer, vol. 7(1), pages 83-127, May.
    25. Ben S. Bernanke, 1983. "Irreversibility, Uncertainty, and Cyclical Investment," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 98(1), pages 85-106.
    26. Antonio Fatás & Ilian Mihov, 2003. "The Case for Restricting Fiscal Policy Discretion," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 118(4), pages 1419-1447.
    27. Missale, Alessandro, 1999. "Public Debt Management," OUP Catalogue, Oxford University Press, number 9780198290858.
    28. International Monetary Fund, 2005. "Spain: Selected Issues," IMF Staff Country Reports 2005/057, International Monetary Fund.
    29. Kenneth Dyson, 2000. "EMU as Europeanization: Convergence, Diversity and Contingency," Journal of Common Market Studies, Wiley Blackwell, vol. 38(4), pages 645-666, November.
    30. Poterba, James M. & von Hagen, Jurgen (ed.), 1999. "Fiscal Institutions and Fiscal Performance," National Bureau of Economic Research Books, University of Chicago Press, edition 1, number 9780226676234, September.
    31. James M. Poterba & Jürgen von Hagen, 1999. "Fiscal Institutions and Fiscal Performance," NBER Books, National Bureau of Economic Research, Inc, number pote99-1.
    32. Jürgen von Hagen & Andrew Hughes Hallett & Rolf Strauch, 2001. "Budgetary Consolidation in EMU," European Economy - Economic Papers 2008 - 2015 148, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
    33. Massimo Rostagno & Javier Pérez-García & Paul Hiebert, 2001. "Optimal Debt Under a Deficit Constraint," Palgrave Macmillan Books, in: Anne Brunila & Marco Buti & Daniele Franco (ed.), The Stability and Growth Pact, chapter 13, pages 313-343, Palgrave Macmillan.
    34. Beetsma, Roel & Uhlig, Harald, 1999. "An Analysis of the Stability and Growth Pact," Economic Journal, Royal Economic Society, vol. 109(458), pages 546-571, October.
    35. Lars Calmfors & Giancarlo Corsetti, 2003. "How to Reform Europe’s Fiscal Policy Framework," World Economics, World Economics, 1 Ivory Square, Plantation Wharf, London, United Kingdom, SW11 3UE, vol. 4(1), pages 109-116, January.
    36. Guillermo A. Calvo, 1998. "CAPITAL FLOWS AND CAPITAL-MARKET CRISES: The Simple Economics of Sudden Stops," Journal of Applied Economics, Taylor & Francis Journals, vol. 1(1), pages 35-54, November.
    37. Buti, Marco, 2003. "Revisiting the stability and growth pact: grand design or internal adjustment?," Sede de la CEPAL en Santiago (Estudios e Investigaciones) 34908, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL).
    38. Philip Lane, 2010. "External Imbalances and Fiscal Policy," The Institute for International Integration Studies Discussion Paper Series iiisdp314, IIIS.
    39. Philip R. Lane, 2006. "The Real Effects of European Monetary Union," Journal of Economic Perspectives, American Economic Association, vol. 20(4), pages 47-66, Fall.
    40. Gleich, Holger, 2003. "Budget institutions and fiscal performance in Central and Eastern European countries," Working Paper Series 215, European Central Bank.
    41. Barry Eichengreen, 2003. "What to do with the Stability Pact," Intereconomics: Review of European Economic Policy, Springer;ZBW - Leibniz Information Centre for Economics;Centre for European Policy Studies (CEPS), vol. 38(1), pages 7-10, January.
    42. James M. Poterba & Jürgen von Hagen, 1999. "Introduction to "Fiscal Institutions and Fiscal Performance"," NBER Chapters, in: Fiscal Institutions and Fiscal Performance, pages 1-12, National Bureau of Economic Research, Inc.
    43. Barry Eichengreen & Charles Wyplosz, 1998. "The Stability Pact: more than a minor nuisance?," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 13(26), pages 66-113.
    44. Otmar Issing, 2004. "The Stability and Growth Pact: The appropriate fiscal framework for EMU," International Economics and Economic Policy, Springer, vol. 1(1), pages 9-13, March.
    45. Andrew Hughes Hallett, 2008. "Coordination without Explicit Cooperation: Monetary-Fiscal Interactions in an Era of Demographic Change," European Economy - Economic Papers 2008 - 2015 305, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Torój, Andrzej & Bednarek, Elżbieta & Bęza-Bojanowska, Joanna & Osińska, Joanna & Waćko, Katarzyna & Witkowski, Dariusz, 2012. "EMU: the (post-)crisis perspective. Literature survey and implications for the euro-candidates," MF Working Papers 12, Ministry of Finance in Poland, revised 06 Mar 2012.
    2. Ivan Ilkov, 2014. "Fiscal problems in the Eurozone," Economic Thought journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 3, pages 81-104.
    3. Ioannou, Demosthenes & Stracca, Livio, 2014. "Have the euro area and EU governance worked? Just the facts," European Journal of Political Economy, Elsevier, vol. 34(C), pages 1-17.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Krogstrup, Signe & Wyplosz, Charles, 2010. "A common pool theory of supranational deficit ceilings," European Economic Review, Elsevier, vol. 54(2), pages 269-278, February.
    2. Grigoli, Francesco & Mills, Zachary & Verhoeven, Marijn & Vlaicu, Razvan, 2012. "MTEFs and fiscal performance: panel data evidence," Policy Research Working Paper Series 6186, The World Bank.
    3. Fiorella Kostoris Padoa Schioppa, 2006. "The 2005 Reform of the Stability and Growth Pact: Too Little, Too Late?," Bruges European Economic Research Papers 6, European Economic Studies Department, College of Europe.
    4. Willem H. Buiter & Clemens Grafe, 2004. "Patching up the Pact," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 12(1), pages 67-102, March.
    5. Roel M.W.J.Beetsma & Frederick van der Ploeg, 2007. "The political economy of public investment," European Economy - Economic Papers 2008 - 2015 276, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
    6. Roel M.W.J. Beetsma & Frederick van der Ploeg, 2007. "Partisan Public Investment and Debt: The Case for Fiscal Restrictions," Economics Working Papers ECO2007/37, European University Institute.
    7. Győrffy, Dóra, 2005. "Az intézményi tényezők szerepe az államháztartási hiány alakulásában Magyarországon [The role of institutional factors in the development of budget deficit in Hungary]," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(10), pages 755-773.
    8. Vlaicu, Razvan & Verhoeven, Marijn & Grigoli, Francesco & Mills, Zachary, 2014. "Multiyear budgets and fiscal performance: Panel data evidence," Journal of Public Economics, Elsevier, vol. 111(C), pages 79-95.
    9. Marcela Eslava, 2011. "The Political Economy Of Fiscal Deficits: A Survey," Journal of Economic Surveys, Wiley Blackwell, vol. 25(4), pages 645-673, September.
    10. Krzysztof Beck & Michał Możdżeń, 2020. "Institutional Determinants of Budgetary Expenditures. A BMA-Based Re-Evaluation of Contemporary Theories for OECD Countries," Sustainability, MDPI, vol. 12(10), pages 1-31, May.
    11. Heipertz, Martin, 2003. "The Stability and Growth Pact - Not the best but better than nothing. Reviewing the debate on fiscal policy in Europe's Monetary Union," MPIfG Working Paper 03/10, Max Planck Institute for the Study of Societies.
    12. Gladys A. A. Nabieu & Godfred A. Bokpin & Achampong K. Osei & Patrick O. Asuming, 2021. "The effects of fiscal governance on fiscal performance in Sub‐Saharan Africa," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 26(4), pages 5746-5761, October.
    13. repec:spo:wpmain:info:hdl:2441/1cud3763momrc7c9o91o4g581 is not listed on IDEAS
    14. repec:hal:spmain:info:hdl:2441/1cud3763momrc7c9o91o4g581 is not listed on IDEAS
    15. Michał Mackiewicz, 2006. "Przyczyny deficytu finansów publicznych w świetle nowej ekonomii politycznej," Gospodarka Narodowa. The Polish Journal of Economics, Warsaw School of Economics, issue 3, pages 1-22.
    16. Frankel, Jeffrey A. & Vegh, Carlos A. & Vuletin, Guillermo, 2013. "On graduation from fiscal procyclicality," Journal of Development Economics, Elsevier, vol. 100(1), pages 32-47.
    17. Jeffrey Frankel, 2013. "A Solution to Fiscal Procyclicality: The Structural Budget Institutions Pioneered by Chile," Central Banking, Analysis, and Economic Policies Book Series, in: Luis Felipe Céspedes & Jordi Galí (ed.),Fiscal Policy and Macroeconomic Performance, edition 1, volume 17, chapter 9, pages 323-391, Central Bank of Chile.
    18. Feld, Lars P & Kirchgassner, Gebhard, 2001. "Does Direct Democracy Reduce Public Debt? Evidence from Swiss Municipalities," Public Choice, Springer, vol. 109(3-4), pages 347-370, December.
    19. Hideaki Tanaka, 2005. "Fiscal Rules and Targets and Public Expenditure Management: Enthusiasm in the 1990's and its Aftermath," Asia Pacific Economic Papers 346, Australia-Japan Research Centre, Crawford School of Public Policy, The Australian National University.
    20. Julia Darby & Jacques Melitz, 2011. "Joint Estimates of Automatic and Discretionary Fiscal Policy: the OECD 1981-2003," Working Papers 2011-14, CEPII research center.
    21. Marek Lubiński, 2011. "Przyszłość paktu stabilności i wzrostu," Gospodarka Narodowa. The Polish Journal of Economics, Warsaw School of Economics, issue 1-2, pages 19-42.
    22. Fisayo Fagbemi, 2020. "Assessing the Role of Governance in West African Fiscal Performance," The American Economist, Sage Publications, vol. 65(1), pages 97-122, March.

    More about this item

    Keywords

    European Monetary Union; fiscal adjustment; external imbalances; global financial crisis;
    All these keywords.

    JEL classification:

    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • F55 - International Economics - - International Relations, National Security, and International Political Economy - - - International Institutional Arrangements
    • H60 - Public Economics - - National Budget, Deficit, and Debt - - - General

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cwm:wpaper:97. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Daifeng He or Alfredo Pereira (email available below). General contact details of provider: https://edirc.repec.org/data/decwmus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.