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The Stability and Growth Pact: Lessons from the Great Recession

Author

Listed:
  • Larch, Martin

    () (Directorate General for Economic and Financial Affairs, European Commission)

  • van den Noord, Paul

    () (Organisation for Economic Co-operation and Development (OECD))

  • Jonung, Lars

    () (School of Economics and Management)

Abstract

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.

Suggested Citation

  • Larch, Martin & van den Noord, Paul & Jonung, Lars, 2011. "The Stability and Growth Pact: Lessons from the Great Recession," Working Papers 2011:6, Lund University, Department of Economics.
  • Handle: RePEc:hhs:lunewp:2011_006
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    References listed on IDEAS

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    Cited by:

    1. Merola, Rossana & Pérez, Javier J., 2013. "Fiscal forecast errors: Governments versus independent agencies?," European Journal of Political Economy, Elsevier, vol. 32(C), pages 285-299.
    2. Ferré, Montserrat, 2012. "The effects of uncertainty about countries’ compliance with the Stability and Growth Pact," Journal of Policy Modeling, Elsevier, pages 660-674.
    3. Ebert, Werner & Eckardt, Martina, 2011. "Wirtschafts- und finanzpolitische Koordinierung in der EU – Erfahrungen aus einem Jahrzehnt Politikkoordinierung
      [Public policy coordination in the EU - experiences from one decade of policy coordi
      ," MPRA Paper 29281, University Library of Munich, Germany.

    More about this item

    Keywords

    Stability and Growth Pact; EU; Europe; the euro; Great Recession; fiscal sovereignty;

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • 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
    • H60 - Public Economics - - National Budget, Deficit, and Debt - - - General

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