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The Stability and Growth Pact: Lessons from the Great Recession

  • 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)

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.

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File URL: http://project.nek.lu.se/publications/workpap/papers/WP11_6.pdf
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Paper provided by Lund University, Department of Economics in its series Working Papers with number 2011:6.

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Length: 52 pages
Date of creation: 27 Jan 2011
Date of revision:
Handle: RePEc:hhs:lunewp:2011_006
Contact details of provider: Postal: Department of Economics, School of Economics and Management, Lund University, Box 7082, S-220 07 Lund,Sweden
Phone: +46 +46 222 0000
Fax: +46 +46 2224613
Web page: http://www.nek.lu.se/en
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