The Euro and the Stability Pact

Martin S. Feldstein

No 11249, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper begins by discussing the inherent conflict between the simultaneous existence of a single currency for the countries of the European Economic and Monetary Union (EMU) and the independent fiscal policies of those countries. The Stability and Growth Pact was an attempt to reconcile that conflict. I describe how EMU governments have chosen to ignore the Stability Pact's constraint on budget deficits and how they sought to undermine it by changing the rules themselves. The final part of the paper describes the actual resolution of the issue by the agreement reached at the end of March 2005 by the European Council. The new policy effectively abandons the Stability Pact and leaves the way open to much larger sustained deficits.

JEL-codes: F4 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-eec, nep-mon and nep-pke
Date: 2005-04
Note: EFG IFM PE POL
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