European debt crisis (original) (raw)
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The Stability and Growth Pact: Crisis and Reform
2011
ABSTRACT The sovereign debt crisis in the euro area is a symptom of policy failures and deficiencies in – among other things – fiscal policy coordination. The first nine years of the euro were not used effectively in order to improve public finances, while the Stability and Growth Pact was watered down. Spillovers from the financial and economic crisis compounded fiscal difficulties in the euro area, especially in certain member countries. This paper looks back at the history of fiscal policies and rules in Economic and Monetary Union (EMU). It makes proposals to strengthen fiscal policy governance that go well beyond the legislation set to be adopted in autumn 2011. The authors consider these additional governance measures to be essential for effective policy coordination and sound public finances in the future.
1The Sustainability of Public Debt in Europe
2014
The issue of budget discipline has always been crucial for European Monetary Union as it concerns both the functioning of EMU in stage 3 and th qualification to access it (Bin-Smaghi, Padoa-Schioppa, Papadia 1994). Yet, the purpose of the fiscal criteria is not uncontentious. The stumbling-bloc is not so much the objective of avoiding “excessive deficits”, but rather the need for binding rules contained in the Treaty on European Union (TEU). Recently, the issue of strictly interpreting the fiscal criteria for the selection of EMU-members in 1999 has also gained prominence. An overly restrictive interpretation could put the whole project at risk, while a lax application could threaten the long-t rm sustainability of the new currency. Proponents of the fiscal criteria argue that countries have typical structural characteristics and that each country must therefore have produced evidence before joining EMU that it is capable of maintaining financial discipline. Issing (1996) went so fa...
2006
The New Member States (NMS) have to comply with the Stability and Growth Pact (SGP) rules: public deficits below 3% of GDP and public debts below 60% of GDP, although they cannot be subject to fines as long as they are not members of the euro area. Most of the NMS currently run higher than 3% of GDP deficits but lower than 60% of GDP debts. The implementation of the surveillance procedures had led 6 of the 12 NMS to be under an excessive deficit procedure (EDP) soon after they joined the EU. Are the SGP rules adequate for the NMS? The SGP rules were not designed for catching-up countries, but for 'old member States'. In particular, the initial rules of the SGP did not account for investment needs. A Golden rule for public finances would be especially appropriate for the NMS, since it would allow them to borrow to finance investment needs that will benefit not only current but also future generations. We argue that SGP rules are not adapted for the NMS and that better rules should be introduced in the prospect of euro area enlargement. Section 1 provides a brief assessment of the current situation of public finance criteria in the NMS. Section 2 considers the rationale of SGP framework for the NMS. Section 3 advocates for a better fiscal rule: the golden rule. Section 4 concludes.
The Sustainability of Public Finances and Europe's Fiscal
One argument for constraining European fiscal policy under the rules of the Stability and Growth Pact (SGP) is the need to ensure the sustainability of public debt. But has the SGP made a difference in this respect? This paper first provides a new approach to analyzing the concept of debt sustainability under the Maastricht rules and then tests formally whether actual policies have been sustainable in the past and whether the start of monetary union has changed policy behaviors. The result is that the Pact has not changed policy behavior, although European fiscal policies have been sustainable. Furthermore, Monetary union has improved the economic environment within which fiscal policy remains sustainable.
The New Stability and Growth Pact: Primum non nocere.CEPS Working Document No. 344, March 2011
2011
The recent economic and financial crises have shown the weakness of EU economic governance. A process of strengthening macroeconomic and fiscal surveillance started in the course of 2010; the European Commission, among other proposals, suggested a new binding criterion of debt reduction: debt-to-GDP ratio is to be considered sufficiently diminishing if its distance with respect to the 60% of GDP reference value has reduced over the previous three years at a rate of the order of one-twentieth per year. In this paper we try to evaluate, with the support of the Oxford Economic Global Model, the economic consequences of the simultaneous attempt of all euro area countries to fulfill this one-twentieth criterion in the 2011-2015 period. Simulation results show that the mechanical application of the debt rule proposed by the European Commission would be only marginally efficient in reducing the debt to GDP ratio at best, but with high costs represented by the loss of flexibility, and counterproductive at worst.
The Sustainability of Public Debt in Europe
2009
The issue of budget discipline has always been crucial for European Monetary Union as it concerns both the functioning of EMU in stage 3 and the qualification to access it (Bini-Smaghi, Padoa-Schioppa, Papadia 1994). Yet, the purpose of the fiscal criteria is not uncontentious. The stumbling-bloc is not so much the objective of avoiding “excessive deficits”, but rather the need for binding rules contained in the Treaty on European Union (TEU). Recently, the issue of strictly interpreting the fiscal criteria for the selection of EMU-members in 1999 has also gained prominence. An overly restrictive interpretation could put the whole project at risk, while a lax application could threaten the long-term sustainability of the new currency.
101 Proposals to Reform the Stability and Growth Pact: Why so Many? A Survey
… and Management, Vol. 8, No. 3, …, 2006
The failure of key EU Member States to respect the requirements 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 systematically 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. Each proposal is characterized by a set of variables reflecting features such as the degree of modification of the SGP, the background of its author(s), the main aim attached to fiscal policy coordination in the EMU, the timing of the proposal and the type of proposal made. Using multivariate statistical analysis, 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.