The Stability Pact Pains: A Forward-Looking Assessment of the Reform Debate

CentER Discussion Paper No. 2005-101

31 Pages Posted: 2 Oct 2005

See all articles by Marco Buti

Marco Buti

European Commission, DG II

Sylvester C. W. Eijffinger

Tilburg University (CentER) - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute); Centre for Economic Policy Research (CEPR)

Daniele Franco

Bank of Italy

Multiple version iconThere are 2 versions of this paper

Date Written: August 2005

Abstract

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.

Keywords: EMS, fiscal policy, fiscal rules, Economic and Monetary Union, Stability and Growth Pact

JEL Classification: E61, H3, H6, H7

Suggested Citation

Buti, Marco and Eijffinger, Sylvester C. W. and Franco, Daniele, The Stability Pact Pains: A Forward-Looking Assessment of the Reform Debate (August 2005). CentER Discussion Paper No. 2005-101, Available at SSRN: https://ssrn.com/abstract=810264 or http://dx.doi.org/10.2139/ssrn.810264

Marco Buti (Contact Author)

European Commission, DG II ( email )

Rue de la Loi 200
Brussels, B-1049
Belgium
+32 2 296 2246 (Phone)
+32 2 299 3505 (Fax)

Sylvester C. W. Eijffinger

Tilburg University (CentER) - Department of Economics ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands
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+31 13 466 3042 (Fax)

CESifo (Center for Economic Studies and Ifo Institute)

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Munich, DE-81679
Germany

HOME PAGE: http://www.CESifo.de

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Daniele Franco

Bank of Italy ( email )

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Rome, 00184
Italy
+39 06 4792 2793 (Phone)
+39 06 4792 2324 (Fax)

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