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The Euro and the Stability Pact

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  • Martin Feldstein

Abstract

This paper begins by discussing the inherent conflict between the simultaneous existence of a single currency for the countries of the European Economic and Monetary Union (EMU) and the independent fiscal policies of those countries. The Stability and Growth Pact was an attempt to reconcile that conflict. I describe how EMU governments have chosen to ignore the Stability Pact's constraint on budget deficits and how they sought to undermine it by changing the rules themselves. The final part of the paper describes the actual resolution of the issue by the agreement reached at the end of March 2005 by the European Council. The new policy effectively abandons the Stability Pact and leaves the way open to much larger sustained deficits.

Suggested Citation

  • Martin Feldstein, 2005. "The Euro and the Stability Pact," NBER Working Papers 11249, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:11249
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    JEL classification:

    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance

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