The German Dynamics of Uploading the Stability Pact

Jani Kaarlejärvi

Chapter 3 in Fiscal Policy without a State in EMU?, 2007, pp 53-85 from Palgrave Macmillan

Abstract: Abstract Although the Stability Pact has introduced a specific coordination system for national fiscal policies, it is still an open question how it will manage to secure required national commitments and adjustments in EMU. Germany, regarded as the leading European economy since the establishment of the European Monetary System (EMS) in the late 1970s, has continually struggled with its budgetary policy under the fiscal rules of the Stability Pact. Mounting adaptation problems in the German economy have prompted a wide European debate on reforming the fiscal rules of the Stability Pact to allow more national flexibility in economic policy-making in downturns in EMU. The fundamental problem in German fiscal policy stems from the fact that in the EMU circumstances, national monetary adjustments to economic decline are no longer a policy option and simultaneously, adjustments in national fiscal policy are subjected to increasing fiscal policy coordination. In practice, the German economy has moved from being the early pace-setter of EMU to an economy that has most serious problems in adjusting to increasing fiscal policy coordination in the EMU era. The German pathway to EMU has been straightforward (with strong continuity) but stabilising its national budgetary policy under the Stability Pact as a crucial single step in EMU has proved to be a major challenge (causing marked discontinuity).

Keywords: Monetary Policy; Fiscal Policy; Trade Union; Public Debt; Public Spending (search for similar items in EconPapers)
Date: 2007
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Persistent link: https://EconPapers.repec.org/RePEc:pal:palchp:978-0-230-59010-6_3

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DOI: 10.1057/9780230590106_3

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