The Stability and Growth Pact: Lessons from the Great Recession

Martin Larch, Paul Van den Noord and Lars Jonung ()

No 429, European Economy - Economic Papers 2008 - 2015 from Directorate General Economic and Financial Affairs (DG ECFIN), European Commission

Abstract: While current instruments of EU economic policy coordination helped stave off a full-scale depression, the post-2007 global financial and economic crisis has revealed a number of weaknesses in the Stability and Growth Pact, the EU framework for fiscal surveillance and fiscal policy coordination. This paper provides a diagnosis of how the SGP faired ahead and during the present crisis and offers a first comprehensive review of the ongoing academic and policy debate, including an account of the reform proposals adopted by the Commission on 29 September 2010. In our view, the current system of EU rules is unbalanced. It consists of (i) very specific provisions on how to conduct fiscal policy making in normal times with no effective enforcement mechanisms, and of (ii) no or extremely tight provisions for really bad economic times, like the Great Recession. A two-pronged approach as outlined in this report is needed to revive the Pact: tighter enforcement, coupled with broader macroeconomic surveillance, in good times and an open window for exceptionally bad times, including a crisis resolution mechanism at the EU level.

JEL-codes: E62 E63 H6 (search for similar items in EconPapers)
Pages: 54 pages
Date: 2010-12
New Economics Papers: this item is included in nep-cba, nep-eec, nep-fdg and nep-mac
References: Add references at CitEc
Citations: View citations in EconPapers (12)

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Related works:
Working Paper: The Stability and Growth Pact: Lessons from the Great Recession (2011)
Working Paper: The stability and growth pact: lessons from the great recession (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:euf:ecopap:0429

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