A European fiscal framework designed for stability or growth ?

Catherine Mathieu () and Henri Sterdyniak ()
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Catherine Mathieu: OFCE - Observatoire français des conjonctures économiques (Sciences Po) - Sciences Po - Sciences Po

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Abstract: The paper by Catherine Mathieu and Henri Sterdyniak addresses the weaknesses of the Euro area fiscal framework and provides a brief assessment of the first years of experience with the Stability and Growth Pact (SGP). The SGP introduced in 1997 has rapidly shown its needs for reforms, both on economic and political grounds. The Euro area has remained a low growth area, while the implementation of rigid fiscal rules lacking economic rationale has induced persistent tensions among member states. The new anti-Keynesian view behind the fiscal framework has a very weak basis both theoretically and empirically. The authors argue that although the European Council?s agreement of March 2005 makes steps towards more economic rationale, important issues remain unsolved. Member States should keep their prerogative on national fiscal policy, as long as it does not affect the macroeconomic position of the area. Binding rules should bear directly on negative externalities: inflation and current account balances. In addition, real economic policy coordination should be set up within the Eurogroup, with the European Central Bank (ECB) accepting to enter into dialogue. This coordination should not focus on budgetary positions in balance, but should aim at supporting economic activity and achieving the 3 percent annual growth target of the Lisbon strategy.

Date: 2006
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Citations: View citations in EconPapers (26)

Published in Eckhard Hein; A. Heise; Achim Truger. European Economic Policies, Alternatives to Orthodox Analysis and Policy Concepts, Metropolis Verlag, pp.41 - 68, 2006, 9783895185601

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-03416080

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