IDEAS home Printed from
MyIDEAS: Log in (now much improved!) to save this paper

The Stability and Growth Pact: Lessons from the Great Recession

  • Martin Larch
  • Paul van den Noord
  • Lars Jonung

While current instruments of EU economic policy coordination helped stave off a full-scale depression, the post-2007 global financial and economic crisis has revealed a number of weaknesses in the Stability and Growth Pact, the EU framework for fiscal surveillance and fiscal policy coordination. This paper provides a diagnosis of how the SGP faired ahead and during the present crisis and offers a first comprehensive review of the ongoing academic and policy debate, including an account of the reform proposals adopted by the Commission on 29 September 2010. In our view, the current system of EU rules is unbalanced. It consists of (i) very specific provisions on how to conduct fiscal policy making in normal times with no effective enforcement mechanisms, and of (ii) no or extremely tight provisions for really bad economic times, like the Great Recession. A two-pronged approach as outlined in this report is needed to revive the Pact: tighter enforcement, coupled with broader macroeconomic surveillance, in good times and an open window for exceptionally bad times, including a crisis resolution mechanism at the EU level.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL:
Download Restriction: no

Paper provided by Directorate General Economic and Financial Affairs (DG ECFIN), European Commission in its series European Economy - Economic Papers 2008 - 2015 with number 429.

in new window

Length: 54 pages
Date of creation: Dec 2010
Date of revision:
Handle: RePEc:euf:ecopap:0429
Contact details of provider: Postal:
Inter-institutional relations and communication Unit, B-1049 Brussels

Fax: +32 2 298.08.23
Web page:

More information through EDIRC

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Nicola Brandt & Jean-Marc Burniaux & Romain Duval, 2005. "Assessing the OECD Jobs Strategy: Past Developments and Reforms," OECD Economics Department Working Papers 429, OECD Publishing.
  2. Biroli, Pietro & Mourre, Gilles & Turrini, Alessandro Antonio, 2010. "Adjustment in the Euro Area and Regulation of Product and Labour Markets: An Empirical Assessment," CEPR Discussion Papers 8010, C.E.P.R. Discussion Papers.
  3. Marco Buti & Alessandro Turrini & Paul Van den Noord & Pietro Biroli, 2008. "Defying the 'Juncker Curse': Can Reformist Governments Be Re-elected?," European Economy - Economic Papers 2008 - 2015 324, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
  4. André Sapir & Francois Gianviti & Anne Krueger & Jean Pisani-Ferry & Jürgen von Hagen, 2010. "A European Mechanism for Sovereign Debt Crisis Resolution: A Proposal," ULB Institutional Repository 2013/174280, ULB -- Universite Libre de Bruxelles.
  5. Assaf Razin & Efraim Sadka, 2002. "The Stability and Growth Pact as an Impediment to Privatizing Social Security," NBER Working Papers 9278, National Bureau of Economic Research, Inc.
  6. 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.
  7. 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.
  8. André Sapir & Marco Buti, 1998. "Economic policy in EMU," ULB Institutional Repository 2013/8078, ULB -- Universite Libre de Bruxelles.
  9. André Sapir & Jean Pisani-Ferry, 2006. "Last exit to Lisbon," ULB Institutional Repository 2013/8106, ULB -- Universite Libre de Bruxelles.
  10. Bordo, Michael D. & Schwartz, Anna J., 1999. "Under what circumstances, past and present, have international rescues of countries in financial distress been successful?," Journal of International Money and Finance, Elsevier, vol. 18(4), pages 683-708, August.
  11. Olivier J Blanchard & Giovanni Dell'Ariccia & Paolo Mauro, 2010. "Rethinking Macroeconomic Policy," IMF Staff Position Notes 2010/03, International Monetary Fund.
  12. Paul Conway & Véronique Janod & Giuseppe Nicoletti, 2005. "Product Market Regulation in OECD Countries: 1998 to 2003," OECD Economics Department Working Papers 419, OECD Publishing.
  13. Martin Larch & Alessandro Turrini, 2010. "The cyclically adjusted budget balance in EU fiscal policymaking," Intereconomics: Review of European Economic Policy, Springer;German National Library of Economics;Centre for European Policy Studies (CEPS), vol. 45(1), pages 48-60, January.
  14. Giuseppe Nicoletti & Andrea Bassanini & Ekkehard Ernst & Sébastien Jean & Paulo Santiago & Paul Swaim, 2001. "Product and Labour Markets Interactions in OECD Countries," OECD Economics Department Working Papers 312, OECD Publishing.
  15. Koeniger, Winfried & Vindigni, Andrea, 2003. "Employment Protection and Product Market Regulation," IZA Discussion Papers 880, Institute for the Study of Labor (IZA).
  16. Kydland, Finn E & Prescott, Edward C, 1977. "Rules Rather Than Discretion: The Inconsistency of Optimal Plans," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 473-91, June.
  17. Lars Jonung, 2002. "EMU and the euro - the first 10 years. Challenges to the sustainability and price stability of the euro area - what does history tell us?," European Economy - Economic Papers 2008 - 2015 165, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
  18. Lars Jonung & Martin Larch, 2006. "Improving fiscal policy in the EU: the case for independent forecasts," Economic Policy, CEPR;CES;MSH, vol. 21(47), pages 491-534, 07.
  19. Xavier Debrun & Laurent Moulin & Alessandro Turrini & Joaquim Ayuso-i-Casals & Manmohan S. Kumar, 2008. "Tied to the mast? National fiscal rules in the European Union," Economic Policy, CEPR;CES;MSH, vol. 23, pages 297-362, 04.
  20. Jens Høj & Vincenzo Galasso & Giuseppe Nicoletti & Thai-Thanh Dang, 2006. "The Political Economy of Structural Reform: Empirical Evidence from OECD Countries," OECD Economics Department Working Papers 501, OECD Publishing.
  21. John B. Taylor, 2000. "Reassessing Discretionary Fiscal Policy," Journal of Economic Perspectives, American Economic Association, vol. 14(3), pages 21-36, Summer.
  22. Nathalie Girouard & Christophe André, 2005. "Measuring Cyclically-adjusted Budget Balances for OECD Countries," OECD Economics Department Working Papers 434, OECD Publishing.
  23. Paul van den Noord, 2000. "The Size and Role of Automatic Fiscal Stabilizers in the 1990s and Beyond," OECD Economics Department Working Papers 230, OECD Publishing.
  24. Barro, Robert J & Gordon, David B, 1983. "A Positive Theory of Monetary Policy in a Natural Rate Model," Journal of Political Economy, University of Chicago Press, vol. 91(4), pages 589-610, August.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:euf:ecopap:0429. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (ECFIN INFO)

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 references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link 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 profile, as there may be some citations waiting for confirmation.

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

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.