101 Proposals to Reform the Stability and Growth Pact. Why so many? A Survey

Research output: Contribution to journalArticle

Abstract

The failure of key EU Member States to respect the provi- sions of the Stability and Growth Pact (SGP) a few years after its inception triggered a heated debate on how to reform the frame- work of fiscal policy coordination in the Economic and Monetary Union (EMU). This paper analyzes 101 reform proposals pre- sented 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 affect 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 pro- posals, the most important being the present lack of a consensus in the economics profession concerning the role of fiscal policy. Economists hold diverging views on the goals, instruments, effi- ciency 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 govern- ments.

Details

Authors
External organisations
  • European Commission, Directorate-General for Economic and Financial Affairs
Research areas and keywords

Subject classification (UKÄ) – MANDATORY

  • Economics
Original languageEnglish
Pages (from-to)502-560
Number of pages59
JournalPublic Finance and Management
Volume8
Issue number3
Publication statusPublished - 2008
Publication categoryResearch
Peer-reviewedYes
Externally publishedYes

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