101 Proposals to Reform the Stability and Growth Pact: Why so Many? A Survey

Public Finance and Management, Vol. 8, No. 3, 2006

48 Pages Posted: 14 Oct 2008 Last revised: 5 Jan 2010

See all articles by Lars Jonung

Lars Jonung

Lund University - Dept. of Economics

Martin Larch

European Fiscal Board

Jonas Fischer

European Union - Directorate General for Economic and Financial Affairs (DG ECFIN)

Date Written: December 1, 2006

Abstract

The failure of key EU Member States to respect the provisions of the Stability and Growth Pact (SGP) a few years after its inception triggered a heated debate on how to reform the framework of fis-cal policy coordination in the Economic and Monetary Union (EMU). This paper analyzes 101 reform proposals presented by professional academic and non-academic economists prior to March 2005, when the Council of the European Union adopted a revised version of the SGP. Roughly four different schools of thought concerning the reform of the SGP are identified. In line with the main findings of the political economy literature, all four schools of thought share the view that in the absence of specific rules fiscal policy would lead to excessive deficits and hence af-fect the conduct of the common monetary policy. However, beyond this common denominator, there is no consensus on how best to co-ordinate fiscal policy.

We present several explanations for the multitude of proposals, the most important being the present lack of a consensus in the economics profession concerning the role of fiscal policy. Econo-mists hold diverging views on the goals, instruments, efficiency and institutions for fiscal policy-making. This state of affairs is in sharp contrast to the case of monetary policy. Also, the euro area is the first case where monetary policy-making is centralized while fiscal policy-making is decentralized to national governments.

Keywords: Monetary union, euro, fiscal policy, Stability and Growth Pact, international policy coordination, EMU, European Union, Europe

JEL Classification: E32, E62, E63, C23, H30

Suggested Citation

Jonung, Lars and Larch, Martin and Fischer, Jonas, 101 Proposals to Reform the Stability and Growth Pact: Why so Many? A Survey (December 1, 2006). Public Finance and Management, Vol. 8, No. 3, 2006, Available at SSRN: https://ssrn.com/abstract=1284414

Lars Jonung

Lund University - Dept. of Economics ( email )

Box 7080
Lund, 22007
Sweden

Martin Larch (Contact Author)

European Fiscal Board ( email )

Belgium
0032 2 2969244 (Phone)

Jonas Fischer

European Union - Directorate General for Economic and Financial Affairs (DG ECFIN) ( email )

BU-1 05/190
Brussels, Bruxelles B-1049
Belgium

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