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Reforming the Stability and Growth Pact: Breaking the Ice

Catherine Mathieu () and Henri Sterdyniak ()

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Abstract: This paper presents a critical assessment of the Stability and Growth Pact (SGP). Section 2 recalls the fiscal policy framework in the euro area. Section 3 provides an assessment of the first five years of the SGP. Section 4 addresses the weaknesses of the procedures: arbitrary criteria, insufficient economic policy co-ordination. Section 5 discusses European Commission's recent proposals: strengthening its influence on national fiscal policies; considering 'close-to-balance or in surplus' underlying budgetary positions. Section 6 discusses recent academic proposals: budgetary federalism, golden rule, permanent balance rule, public expenditure rule, fiscal policy committees, public debt surveillance... In section 7 we suggest that national budgetary policies should be responsible for managing the inflationproduction trade-off, under a medium term inflation objective, while monetary policy would target interest rates. This policy mix would give better outcomes in terms of economic stabilisation than the existing framework.

Date: 2003-05
Note: View the original document on HAL open archive server: https://hal-sciencespo.archives-ouvertes.fr/hal-00972861
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Working Paper: Reforming the Stability and Growth Pact: Breaking the Ice (2003) Downloads
Working Paper: Reforming the Stability and Growth Pact: Breaking the Ice (2003) Downloads
Working Paper: Reforming the Stability and Growth Pact: Breaking the Ice? Downloads
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