101 proposals to reform the Stability and Growth Pact. Why so many? A survey

Martin Larch, Lars Jonung () and Jonas Fischer

MPRA Paper from University Library of Munich, Germany

Abstract: The failure of key EU Member States to respect the provisions of the Stability and Growth Pact (SGP) a few years after its inception triggered a heated debate on how to reform the framework of fiscal policy coordination in the Economic and Monetary Union (EMU). This paper analyzes 101 reform proposals presented by professional academic and non-academic economists prior to March 2005, when the Council of the European Union adopted a revised version of the SGP. Roughly four different schools of thought concerning the reform of the SGP are identified. In line with the main findings of the political economy literature, all four schools of thought share the view that in the absence of specific rules fiscal policy would lead to excessive deficits and hence affect the conduct of the common monetary policy. However, beyond this common denominator, there is no consensus on how best to co-ordinate fiscal policy. We present several explanations for the multitude of proposals, the most important being the present lack of a consensus in the economics profession concerning the role of fiscal policy. Economists hold diverging views on the goals, instruments, efficiency and institutions for fiscal policy-making. This state of affairs is in sharp contrast to the case of monetary policy. Also, the euro area is the first case where monetary policy-making is centralized while fiscal policy-making is decentralized to national governments.

Keywords: Monetary union; euro; fiscal policy; Stability and Growth Pact; international policy coordination; EMU; European nion; Europe (search for similar items in EconPapers)
JEL-codes: E32 E62 E63 H30 (search for similar items in EconPapers)
Date: 2008
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (13)

Published in Public Finance and Management 3.8(2008): pp. 502-560

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Working Paper: 101 Proposals to reform the Stability and Growth Pact. Why so many? A Survey (2007)
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