Conclusion
While we are sceptical of re-opening the debate on the SGP,26 we think that its functioning can nonetheless be improved. Our main proposals concern redefining the medium-term budgetary targets, improving transparency, tackling the pro-cyclical fiscal bias in good times, moving towards non-partisan application of the rules and improving transparency in the data. This set of ideas allows the achievement of both stronger discipline and higher flexibility and can be implemented without requiring any major revision of the existing rules. These proposals do not provide a recipe for tackling the problems encountered by countries still in transition towards lower deficits in the event of a cyclical slump. Nevertheless, if implemented, they would limit the type of behaviour which is largely responsible for the current fiscal tensions.
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References
See M. Buti, S. Eijffinger, D. Franco: Revisiting the Stability and Growth Pact: Grand Design or Internal Adjustment?, CEPR Discussion Paper No. 3692, 2002.
Ibid. See M. Buti, S. Eijffinger, D. Franco: Revisiting the Stability and Growth Pact: Grand Design of Internal Adjustment?, CEPR Discussion Paper No. 3692, 2002.
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According to the European Commission estimates, these margins would be adequate for the larger countries. See also the estimates by Dalsgaard and de Serres (T. Dalsgaard, A. de Serres: Estimating Prudent Budgetary Margins, in: A. Brunila, M. Buti, D. Franco (eds.): The Stability and Growth Pact — The Architecture of Fiscal Policy in EMU, Basingstoke 2001, Paigrave, pp. 204–234), Barrell and Dury (R. Barrell, K. Dury: Will the SGP Ever Be Breached? in: A. Brunila, M. Buti, D. Franco (eds.), op. cit., pp. 235–255) and Buti, Franco and Ongena (M. Buti, D. Franco, H. Ongena: Budgetary Policies During Recessions — Retrospective Application of the Stability and Growth Pact to the Post-War Period, in: Recherches Economiques de Louvain, Vol. 63, No. 4, 1997, pp. 321–66). The risk of breaching the 3% threshold would be further reduced by the introduction of rainy-day funds.
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See also M. Buti, S. Eijffinger, D. Franco, op. cit. Revisiting the Stability and Growth Pact: Grand Design or Internal Adjustment?, CEPR Discussion Paper No. 3692, 2002.
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He is also a member of the Panel of Experts of the Committee on Economic and Monetary Affairs of the European Parliament for which this article was written as a Briefing Paper (November 2002).
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Eijffinger, S.C.W. How can the Stability and Growth Pact be improved to achieve both stronger discipline and higher flexibility?. Intereconomics 38, 10–15 (2003). https://doi.org/10.1007/BF03031833
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DOI: https://doi.org/10.1007/BF03031833