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101 Proposals to reform the Stability and Growth Pact. Why so many? A Survey

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  • Jonas Fischer
  • Lars Jonung
  • Martin Larch

Abstract

The failure of key EU Member States to respect the requirements of the Stability and Growth Pact (SGP) a few years after its inception triggered a heated debate on how to reform the framework of fiscal policy coordination in the Economic and Monetary Union (EMU). This paper systematically analyzes 101 reform proposals presented by professional academic and non-academic economists prior to March 2005, when the Council of the European Union adopted a revised version of the SGP. Each proposal is characterized by a set of variables reflecting features such as the degree of modification of the SGP, the background of its author(s), the main aim attached to fiscal policy coordination in the EMU, the timing of the proposal and the type of proposal made. Using multivariate statistical analysis, roughly four different schools of thought concerning the reform of the SGP are identified. In line with the main findings of the political economy literature, all four schools of thought share the view that in the absence of specific rules fiscal policy would lead to excessive deficits and hence affect the conduct of the common monetary policy. However, beyond this common denominator, there is no consensus on how best to co-ordinate fiscal policy.Several explanations for the multitude of proposals are presented, the most important being the present lack of a consensus in the economics profession concerning the role of fiscal policy.

Suggested Citation

  • Jonas Fischer & Lars Jonung & Martin Larch, 2007. "101 Proposals to reform the Stability and Growth Pact. Why so many? A Survey," European Economy - Economic Papers 2008 - 2015 267, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
  • Handle: RePEc:euf:ecopap:0267
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    References listed on IDEAS

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    1. Var är statsvetarna?
      by Martin Flodén in Ekonomistas on 2011-09-22 12:12:44
    2. ECB måste visa vägen ut!
      by Martin Flodén in Ekonomistas on 2011-09-09 09:00:45

    Citations

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    Cited by:

    1. Larch, Martin & Van den Noord, Paul & Jonung, Lars, 2010. "The stability and growth pact: lessons from the great recession," MPRA Paper 27900, University Library of Munich, Germany.
    2. Michael D. Bordo & Lars Jonung & Agnieszka Markiewicz, 2013. "A Fiscal Union for the Euro: Some Lessons from History ," CESifo Economic Studies, CESifo, vol. 59(3), pages 449-488, September.
    3. Roel Beetsma & Heikki Oksanen, 2008. "Pensions under Ageing Populations and the EU Stability and Growth Pact ," CESifo Economic Studies, CESifo, vol. 54(4), pages 563-592, December.
    4. Barry Eichengreen, 2010. "The Breakup of the Euro Area," NBER Chapters,in: Europe and the Euro, pages 11-51 National Bureau of Economic Research, Inc.
    5. Christian Fahrholz & Cezary Wójcik, 2010. "The Bail-Out! Positive Political Economics of Greek-type Crises in the EMU," CESifo Working Paper Series 3178, CESifo Group Munich.
    6. Manfred Weber & Karl Knappe, 2007. "Fiscal policy in EMU after the reform of the european stability and growth pact," CESifo Forum, Ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 8(4), pages 45-51, January.
    7. Karsten Staehr, 2008. "The Maastricht Inflation Criterion and the New EU Members from Central and Eastern Europe," Bank of Estonia Working Papers 2008-04, Bank of Estonia, revised 30 Oct 2008.
    8. Bodo Herzog, 2011. "EMU at Crossroads," CESifo Forum, Ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 12(4), pages 23-29, December.
    9. Roel Beetsma & Heikki Oksanen, 2007. "Pension Systems, Ageing and the Stability and Growth Pact," CESifo Working Paper Series 2141, CESifo Group Munich.
    10. Heikki Oksanen, 2009. "Setting targets for government budgets in the pursuit of intergenerational equity," European Economy - Economic Papers 2008 - 2015 358, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
    11. Wim Marneffe & Bas van Aarle & Wouter van der Wielen & Lode Vereeck, 2011. "The Impact of Fiscal Rules on Public Finances in the Euro Area," ifo DICE Report, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 9(3), pages 18-26, October.
    12. Ludger Schuknecht & Philippe Moutot & Philipp Rother & Jürgen Stark, 2011. "The Stability and Growth Pact: Crisis and Reform," CESifo DICE Report, Ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 9(3), pages 10-18, October.
    13. Ali Bayar & Bram Smeets, 2009. "Government Deficits in the European Union: An Analysis of Entry and Exit Dynamics," CESifo Working Paper Series 2703, CESifo Group Munich.
    14. Paolo Biraschi, "undated". "Searching for the optimal EMU fiscal rule:an ex-post analysis of the SGP reform proposals," Working Papers wp2008-7, Department of the Treasury, Ministry of the Economy and of Finance.

    More about this item

    Keywords

    Monetary union; euro; fiscal policy; Stability and Growth Pact; international policy coordination; EMU; European Union; Europe; Fischer; Jonung; Larch;

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General
    • 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

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