What to Expect from the Latest Reform of the Stability and Growth Pact

Johannes Holler () and Lukas Reiss ()
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Johannes Holler: Oesterreichische Nationalbank, Economic Analysis Division
Lukas Reiss: Oesterreichische Nationalbank, Economic Analysis Division

Monetary Policy & the Economy, 2011, issue 4, 85–98

Abstract: Before the crisis hit, many euro area countries had failed to create sufficient fiscal room for times of economic difficulty, which made a new reform of the Stability and Growth Pact inevitable. Above all, this most recent reform introduces an expenditure rule in the preventive arm of the pact, operationalizes the debt criterion in the dissuasive arm and imposes stricter sanctions in case of noncompliance. The reform strengthens the preventive arm by making it easier to measure compliance and launch procedures as well as by introducing symbolic sanctions. While the introduction of the debt rule certainly tightened the conditions of the dissuasive arm for highly indebted countries, it remains to be seen by how much, given the large number of exceptions. Notwithstanding the new voting procedure (which is designed to make it more likely that sanctions are in fact applied), we doubt that economically significant penalties will be imposed in the foreseeable future.

Keywords: Stability and Growth Pact; fiscal rules; fiscal policy (search for similar items in EconPapers)
JEL-codes: E61 E62 H60 (search for similar items in EconPapers)
Date: 2011
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Citations: View citations in EconPapers (5)

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