The Stability Pact Pains: A Forward-Looking Assessment of the Reform Debate
European Commission, DG II
Sylvester C. W. Eijffinger
Tilburg University (CentER) - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute for Economic Research); Centre for Economic Policy Research (CEPR)
Bank of Italy
CentER Discussion Paper No. 2005-101
The Stability and Growth Pact has been under fire ever since it was born. But is the Pact a flawed fiscal rule? Against established criteria for an ideal fiscal rule, its design and compliance mechanisms show strengths and weaknesses. The latter tend to reflect tradeoffs typical of supra-national arrangements. In the end, only a higher degree of fiscal integration would remove the inflexibility inherent in the recourse to predefined budgetary rules. No alternative solution put forward in the literature appears clearly superior. This does not mean that the original Pact of 1997 could not be improved. The debate on the SGP has shown that any reform should aim at overcoming the excessive uniformity of the rules, improving their transparency, correcting pro-cyclicality and strengthening enforcement. The reform of the Pact agreed in 2005 moves in this direction but leaves open a number of issues.
Number of Pages in PDF File: 31
Keywords: EMS, fiscal policy, fiscal rules, Economic and Monetary Union, Stability and Growth Pact
JEL Classification: E61, H3, H6, H7working papers series
Date posted: October 2, 2005
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