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Reforming the Stability and Growth Pact: Breaking the Ice

  • Catherine Mathieu

    (OFCE)

  • Henri Sterdyniak

    (OFCE)

This paper presents a critical assessment of the Stability and Growth Pact (SGP). Section 2 recalls the fiscal policy framework in the euro area. Section 3 provides an assessment of the first five years of the SGP. Section 4 addresses the weaknesses of the procedures: arbitrary criteria, insufficient economic policy co-ordination. Section 5 discusses European Commission’s recent proposals: strengthening its influence on national fiscal policies; considering ‘close-to-balance or in surplus’ underlying budgetary positions. Section 6 discusses recent academic proposals: budgetary federalism, golden rule, permanent balance rule, public expenditure rule, fiscal policy committees, public debt surveillance... In section 7 we suggest that national budgetary policies should be responsible for managing the inflationproduction trade-off, under a medium term inflation objective, while monetary policy would target interest rates. This policy mix would give better outcomes in terms of economic stabilisation than the existing framework.

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Paper provided by Sciences Po in its series Sciences Po publications with number 2003-02.

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Date of creation: May 2003
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Handle: RePEc:spo:wpmain:info:hdl:2441/1933
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  1. Henri Sterdyniak & Jérôme Creel, 1998. "Du bon usage des politiques monétaire et budgétaire en Europe," Revue d'Économie Financière, Programme National Persée, vol. 45(1), pages 167-196.
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  4. Xavier Sala-i-Martin & Jeffrey Sachs, 1991. "Fiscal Federalism and Optimum Currency Areas: Evidence for Europe From the United States," NBER Working Papers 3855, National Bureau of Economic Research, Inc.
  5. Modigliani, Franco & Fitoussi, Jean-Paul & Moro, Beniamino & Snower, Dennis J. & Solow, Robert M. & Steinherr, Alfred & Sylos Labini, Stefano, 1998. "An economists' manifesto on unemployment in the European Union," Open Access Publications from Kiel Institute for the World Economy 1776, Kiel Institute for the World Economy (IfW).
  6. Henri Sterdyniak & Pierre Villa & Fabrice Capoen, 1994. "Indépendance des banques centrales, politiques monétaire et budgétaire : une approche stratégique," Revue de l'OFCE, Programme National Persée, vol. 50(1), pages 65-102.
  7. Jean-Paul Fitoussi & Francesco Saraceno, 2002. "A Theory of Social Custom of Which Soft Growth May Be One Consequence. Tales of the European Stability Pact," Sciences Po publications n°2002-07, Sciences Po.
  8. Michael J. Artis & Marco Buti, 2000. "Close to Balance or in Surplus. A Policy Maker’s Guide to the Implementation of the Stability and Growth Pact," EUI-RSCAS Working Papers 28, European University Institute (EUI), Robert Schuman Centre of Advanced Studies (RSCAS).
  9. Marco Buti & Gabriele Giudice, 2002. "Maastricht's Fiscal Rules at Ten: An Assessment," Journal of Common Market Studies, Wiley Blackwell, vol. 40(5), pages 823-848, December.
  10. C�cile Denis & Kieran Mc Morrow & Werner R�ger, 2002. "Production function approach to calculating potential growth and output gaps - estimates for the EU Member States and the US," European Economy - Economic Papers 176, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
  11. Bayoumi, Tamim & Masson, Paul R., 1995. "Fiscal flows in the United States and Canada: Lessons for monetary union in Europe," European Economic Review, Elsevier, vol. 39(2), pages 253-274, February.
  12. Ludger Schuknecht, 2001. "The Implementation of the Stability and Growth Pact," OECD Journal on Budgeting, OECD Publishing, vol. 1(3), pages 81-116.
  13. Marco Buti & Sylvester Eijffinger & Daniele Franco, 2003. "Revisiting the Stability and Growth Pact: grand design or internal adjustment?," European Economy - Economic Papers 180, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
  14. Eisner, Robert, 1989. "Budget Deficits: Rhetoric and Reality," Journal of Economic Perspectives, American Economic Association, vol. 3(2), pages 73-93, Spring.
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  18. Jérôme Creel & Henri Sterdyniak, 1995. "Les déficits publics en Europe : causes, conséquences ou remèdes à la crise ?," Sciences Po publications info:hdl:2441/2965, Sciences Po.
  19. Coricelli, Fabrizio & Ercolani, Valerio, 2002. "Cyclical and Structural Deficits on the Road to Accession: Fiscal Rules for an Enlarged European Union," CEPR Discussion Papers 3672, C.E.P.R. Discussion Papers.
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  21. Dominique Bureau & Paul Champsaur, 1992. "Fédéralisme budgétaire et unification économique européenne," Revue de l'OFCE, Programme National Persée, vol. 40(1), pages 87-99.
  22. Willem H. Buiter & Clemens Grafe, 2004. "Patching up the Pact," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 12(1), pages 67-102, 03.
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