IDEAS home Printed from
   My bibliography  Save this paper

The “New” Stability and Growth Pact: More Flexible, Less Stupid?


  • Rui Henrique Alves

    () (Faculdade de Economia do Porto, Universidade do Porto)

  • Óscar Afonso

    () (CEMPRE, Faculdade de Economia do Porto, Universidade do Porto)


Since the beginning of the European single currency project, the adoption of fiscal binding rules, restraining the use of the single policy instrument left for national authorities, has been challenged by many authors and politicians. The discussion has been rekindled in recent years, following a period of economic recession or stagnation in several Member-Countries and some criticisms linking the Stability and Growth Pact (SGP) to the general economic situation. Some of the questions raised by those who criticised the initial framework for fiscal discipline may have been taken into account in the recent revision of the SGP (March 2005), which followed the suspension of the Pact for Germany and France and eventually made the SGP more flexible and “less stupid”. In this paper, we evaluate the changes contained in the “new” SGP, by taking account of the properties for ideal fiscal rules put forward by Kopits and Symansky (1998) and comparing with some recently published studies on the same topic. The main result of our analysis points towards a clear increase in flexibility together with the probable emergence of new enforcement problems. In this context, an insufficient output in terms of fiscal discipline could arise, leading to the need for new improvements within the European framework for the definition and implementation of national fiscal policies.

Suggested Citation

  • Rui Henrique Alves & Óscar Afonso, 2006. "The “New” Stability and Growth Pact: More Flexible, Less Stupid?," FEP Working Papers 218, Universidade do Porto, Faculdade de Economia do Porto.
  • Handle: RePEc:por:fepwps:218

    Download full text from publisher

    File URL:
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    1. Muscatelli, V. Anton & Tirelli, Patrizio & Trecroci, Carmine, 2004. "Fiscal and monetary policy interactions: Empirical evidence and optimal policy using a structural New-Keynesian model," Journal of Macroeconomics, Elsevier, vol. 26(2), pages 257-280, June.
    2. Willem H. Buiter, 2006. "The 'Sense and Nonsense of Maastricht' Revisited: What Have we Learnt about Stabilization in EMU?," Journal of Common Market Studies, Wiley Blackwell, vol. 44, pages 687-710, November.
    3. Marcus Miller & Mark Salmon, 1985. "Policy Coordination and Dynamic Games," NBER Chapters,in: International Economic Policy Coordination, pages 184-227 National Bureau of Economic Research, Inc.
    4. Alessandra Casella, 1999. "Tradable deficit permits:efficient implementation of the Stability Pact in the European Monetary Union," Economic Policy, CEPR;CES;MSH, vol. 14(29), pages 321-362, October.
    5. Tabellini, Guido, 1990. "Domestic politics and the international coordination of fiscal policies," Journal of International Economics, Elsevier, vol. 28(3-4), pages 245-265, May.
    6. Uhlig, H.F.H.V.S., 2002. "One Money, But Many Fiscal Policies in Europe : What are the Consequences?," Discussion Paper 2002-32, Tilburg University, Center for Economic Research.
    7. Jérôme Creel, 2003. "Ranking Fiscal Policy Rules: the Golden Rule of Public Finance vs. the Stability and Growth Pact," Sciences Po publications 2003-04, Sciences Po.
    8. Marco Buti & Sylvester Eijffinger & Daniele Franco, 2003. "Revisiting EMU's Stability Pact: A Pragmatic Way Forward," Oxford Review of Economic Policy, Oxford University Press, vol. 19(1), pages 100-111.
    9. Buiter, W.H. & Corsetti, G. & Roubini, N., 1992. "Excessive Deficits: Sense and Nonsence in the Treaty of Maastricht," Papers 674, Yale - Economic Growth Center.
    10. Hamada, Koichi, 1976. "A Strategic Analysis of Monetary Interdependence," Journal of Political Economy, University of Chicago Press, vol. 84(4), pages 677-700, August.
    11. Buti, M. & Eijffinger, S.C.W. & Franco, D., 2005. "The Stability pact Pains : A Forward-Looking Assessment of the Reform Debate," Discussion Paper 2005-101, Tilburg University, Center for Economic Research.
    12. Frankel, Jeffrey A & Rockett, Katharine E, 1988. "International Macroeconomic Policy Coordination When Policymakers Do Not Agree on the True Model," American Economic Review, American Economic Association, vol. 78(3), pages 318-340, June.
    13. George Kopits & Steven A. Symansky, 1998. "Fiscal Policy Rules," IMF Occasional Papers 162, International Monetary Fund.
    14. Jurg Niehans, 1968. "Monetary and Fiscal Policies in Open Economies under Fixed Exchange Rates: An Optimizing Approach," Journal of Political Economy, University of Chicago Press, vol. 76, pages 893-893.
    15. Simon Wren-Lewis, 2003. "Changing the Rules," New Economy, Institute for Public Policy Research, vol. 10(2), pages 73-78, June.
    Full references (including those not matched with items on IDEAS)


    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.

    Cited by:

    1. Iulia Andreea Bucur & Simona Elena Dragomirescu, 2013. "An Analysis Of The Fiscal Convergence Criteria In The European Union In Terms Of The Sustainability," Studies and Scientific Researches. Economics Edition, "Vasile Alecsandri" University of Bacau, Faculty of Economic Sciences, issue 18.
    2. Rui Henrique Alves & Óscar Afonso, 2007. "Fiscal Federalism in the European Union: How Far Are We?," FEP Working Papers 244, Universidade do Porto, Faculdade de Economia do Porto.
    3. Amy K. Filipek & Till Schreiber, 2010. "The Stability and Growth Pact: Past Performance and Future Reforms," Working Papers 97, Department of Economics, College of William and Mary.
    4. Stoian, Andreea & Alves, Rui Henrique, 2014. "High public debt in the euro area: still a fact," MPRA Paper 63679, University Library of Munich, Germany.

    More about this item


    EMU; SGP; Fiscal Rules; Fiscal Discipline;

    JEL classification:

    • H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt
    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism

    NEP fields

    This paper has been announced in the following NEP Reports:


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:por:fepwps:218. 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: (). General contact details of provider: .

    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 CitEc recognized a reference but did not link an item in RePEc 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 RePEc Author Service 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.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.