Why 3 and 60 per cent? The rationale of the reference values for fiscal deficits and debt in the European Economic and Monetary Union

Jan Priewe
Additional contact information
Jan Priewe: Senior Research Fellow, Macroeconomic Policy Institute (IMK), Hans Böckler Foundation, Düsseldorf and HTW Berlin – University of Applied Sciences, Germany

European Journal of Economics and Economic Policies: Intervention, 2020, vol. 17, issue 2, 111-126

Abstract: The origins of the reference values for budget deficits and public debt (3 and 60 per cent of GDP) in the euro area are explored. Both numbers came into the Maastricht Treaty by coincidence. Later attempts to legitimise them are traced and found unconvincing. In particular the debt cap is scrutinised, often considered as a precondition for debt sustainability. Since the first overhaul of the Stability and Growth Pact in 2005, reference values for structural deficits became the focus of fiscal policy, but derived from the 60 per cent debt cap. With the so-called Fiscal Compact from 2012, caps for structural deficits were added to the semi-primary law of the European Union. It is argued that the reference values for deficits and debt are not consistent. If the Domar equation is observed, the changing relationship between interest rates on public debt and output growth should be included in the fiscal policy framework. Therefore ‘eternal’ reference values for deficits and debt should be removed from the primary law by Treaty amendments.

Keywords: fiscal policy; Stability and Growth Pact; public debt; fiscal deficit; monetary union; debt sustainability (search for similar items in EconPapers)
JEL-codes: E43 E62 H6 H62 (search for similar items in EconPapers)
Date: 2020
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.elgaronline.com/view/journals/ejeep/17-2/ejeep.2020.02.01.xml (application/pdf)
Restricted access

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:elg:ejeepi:v:17:y:2020:i:2:p111-126

Access Statistics for this article

European Journal of Economics and Economic Policies: Intervention is currently edited by Torsten Niechoj

More articles in European Journal of Economics and Economic Policies: Intervention from Edward Elgar Publishing
Bibliographic data for series maintained by Phillip Thompson ().