Revisiting the Stability and Growth Pact: Grand Design or Internal Adjustment?

Marco Buti, Sylvester Eijffinger () and Daniele Franco ()

No 3692, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: The Stability and Growth Pact is under fire. Problems have appeared in sticking to the rules. Proposals to reform the Pact or ditch it altogether abound. But is the Pact a flawed fiscal rule? Against established criteria for an ideal fiscal rule, its design and compliance mechanisms fare reasonably well. Where weaknesses are found, they tend to reflect trade-offs 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. This does not mean that the EU fiscal rules cannot be improved. Given the existing degree of political integration in EMU, however, internal adjustment rather than attempting to redesign the rules from scratch appears a more suitable way to bring about progress. Redefining the medium term budgetary target, improving transparency, tackling the pro-cyclical fiscal bias in good times, moving towards non-partisan application of the rules and improving transparency in the data can achieve both stronger discipline and higher flexibility.

Keywords: economic and monetary union; fiscal policy; fiscal rules; stability and growth pact (search for similar items in EconPapers)
JEL-codes: E61 H30 H60 H70 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ifn and nep-mac
Date: 2003-01
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