The Reform and Implementation of the Stability and Growth Pact

51 Pages Posted: 10 Jul 2006

See all articles by Richard Morris

Richard Morris

European Central Bank (ECB)

Hedwig Ongena

European Union - European Commission

Ludger Schuknecht

European Central Bank (ECB)

Date Written: June 2006

Abstract

Fiscal rules are instrumental for restraining deficit and spending biases in euro area Member States that could threaten the smooth functioning of Economic and Monetary Union (EMU). Ideally, fiscal rules should combine characteristics such as sufficient flexibility to allow for appropriate policy choices with the necessary simplicity and enforceability to actually discipline government behaviour. The Maastricht Treaty and the Stability and Growth Pact established such a rules-based framework for fiscal polices in EMU. However, the implementation of the Pact was less than fully satisfactory. One year ago, the Pact was reviewed and a reformed version adopted which emphasises more flexible rules and procedures, including more explicit room for judgement and discretion than in its original form. While its proponents argued that these revisions would strengthen commitment and implementation of the rules, others emphasised the risk of weakening the EU fiscal framework. A year on from the SGP reform, this paper takes stock of how the EU fiscal rules have evolved and how they have been implemented from the Maastricht Treaty to the present day, including initial experiences with the implementation of the reformed Pact. The first indications are of a smoother and consistent implementation, but with consolidation requirements that are rather lenient while fiscal targets and projections point to only slow and back-loaded progress towards sound public finances in many countries. The assessment of the implementation of the revised rules is therefore mixed. It is of the essence that the provisions of the revised SGP be rigorously implemented in order to ensure fiscal sustainability.

Keywords: Stability and growth pact, fiscal policy, fiscal rules, EMU

JEL Classification: E61, E62, H6

Suggested Citation

Morris, Richard and Ongena, Hedwig and Schuknecht, Ludger, The Reform and Implementation of the Stability and Growth Pact (June 2006). ECB Occasional Paper No. 47. Available at SSRN: https://ssrn.com/abstract=807424

Richard Morris (Contact Author)

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Hedwig Ongena

European Union - European Commission ( email )

Rue de la Loi 200
Brussels, B-1049
Belgium

Ludger Schuknecht

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany
+49 69 1344 6494 (Phone)
+49 69 1344 7809 (Fax)

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
451
Abstract Views
1,839
rank
66,398
PlumX Metrics