How to Reform the Stability and Growth Pact

Jacek Rostowski
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Jacek Rostowski: Central European University

Chapter Chapter 9 in The Eastern Enlargement of the Eurozone, 2006, pp 147-158 from Springer

Abstract: 6. Conclusion: EMU is a “Premature Monetary Union” The EMU is a ‘premature monetary union’. It is premature in its overall structure (i.e. the absence of an effective fiscal constitution — which it vitally needs), and also in the admission of countries that should not have been admitted given that their debt/GDP ratios were at levels that would not be safe for the union as a whole (Greece, Italy and maybe Belgium). It is also premature in the sense that the rules of admission to the union are not well designed, particularly as regards the choice of the exchange rate at which currencies will be converted into euros. One question flowing from this analysis is whether EMU can be repaired ‘on the go’ (is it, figuratively, a ship or a plane?). Second, given the political difficulty of enacting the reforms I have suggested, the usefulness of such proposals (and many of those made by other authors) may be doubted. However, EMU may not be the last MU to be created. There has been talk of an East Asian Monetary Union. So analyzing the errors that have been made in setting up the EMU need not be a pointless task, even if EMU itself proves unreformable.

Keywords: Central Bank; Fiscal Policy; Public Debt; Monetary Union; European Monetary Union (search for similar items in EconPapers)
Date: 2006
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DOI: 10.1007/0-387-25766-7_9

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