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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.

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Paper provided by Universidade do Porto, Faculdade de Economia do Porto in its series FEP Working Papers with number 218.

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Length: 24 pages
Date of creation: Jul 2006
Date of revision:
Handle: RePEc:por:fepwps:218
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