scholarly journals Deficit Policy within the Framework of the Stability and Growth Pact: An Empirical Analysis

2017 ◽  
Vol 4 (2) ◽  
pp. 76 ◽  
Author(s):  
Nicolas Afflatet
Keyword(s):  
Empirical Analysis ◽  
Monetary Union ◽  
European Monetary Union ◽  
Union Member ◽  
Debt Crisis ◽  
Stability And Growth Pact ◽  
European Monetary ◽  
Growth Pact ◽  
The Stability ◽  
The Empirical Analysis

It has become common to criticize Germany and France for having broken the Stability and Growth Pact in 2003, supposedly giving way for higher deficits thereafter. However, this question has not yet been answered by the economic literature. It is closely related to the issue whether the Stability and Growth Pact had any disciplining effect on European Monetary Union member countries or not. This article examines the question whether joining the European Monetary Union or the breach of the Stability and Growth Pact in 2003 had an impact on deficits of member states. The empirical analysis shows no evidence for higher deficits after having joined the Eurozone or after having breached the Pact in 2003. These results are robust to different testing methods and when using different data samples. They can be explained with the fact that the Pact was undermined from its beginning and only had a limited disciplining effect henceforth. Otherwise the breakout of the ongoing debt crisis would hardly have been possible.

Institutionelle Alternativen in der Europäischen Union: Das Beispiel des Stabilitäts- und Wachstumspaktes

2006 ◽  
Vol 55 (2) ◽  
Author(s):  
Renate Ohr ◽  
André Schmidt
Keyword(s):  
Monetary Union ◽  
European Monetary Union ◽  
Allocative Efficiency ◽  
Stability And Growth Pact ◽  
European Monetary ◽  
Fiscal Deficits ◽  
Member States ◽  
Growth Pact ◽  
The Stability

AbstractThe Stability and Growth Pact is one of the constituent pillars of the European Monetary Union. Though, meanwhile it is obvious that it will not be able to limit fiscal deficits of the member states. For this reason in this paper Coase′s thinking in institutional alternatives is applied to find a better way to increase the incentives for more fiscal stability. We present and discuss tradable deficit permits comprising market-orientated incentives for fiscal stability. It is shown that tradable deficit permits are superior from a politico-economical view as well as with regard to allocative efficiency.

scholarly journals Is debt restructuring needed to make the Stability and Growth Pact (more) credible?

2011 ◽  
Vol 59 (2) ◽  
pp. 155-164
Author(s):  
Jens Körner
Keyword(s):  
Interest Rates ◽  
Monetary Union ◽  
Public Debt ◽  
European Monetary Union ◽  
Stability And Growth Pact ◽  
European Monetary ◽  
Debt Restructuring ◽  
Growth Pact ◽  
Starting Point ◽  
The Stability

The emergence of the so-called PIIGS crisis which in 2009 became acute due to strongly diverging risk premiums, marked the beginning of a new phase for the European Monetary Union. Whilst the run-up to EMU had been characterized by an encouraging convergence of macroeconomic fundamentals of its member countries, it is now facing a serious threat in particular due to excessive levels of public debt. In 1997, the Stability and Growth Pact introduced a mechanism designed to prevent excessive public debt of the type currently observed; the fact of the matter, however, seems to be that levels of public debt has continuously grown from one economic cycle to the next. But the SGP apparently not only failed to fulfil its aim to keep the deficit and the debt level within its limits but also suffered from a severe loss of credibility; unless some profound action is taken it may further diminish, severely hampering the loose structure of the European Monetary Union. In order to regain some credibility, mitigate financial market’s concerns and, hence, lower borrowing cost, a consolidation path is needed to returns to acceptable levels of debt in the foreseeable future. This process has already started and measures have been taken by several eurozone countries to speed up fiscal consolidation. The aim of the paper is to analyze whether or not the group of the PIIGS countries are likely to return to debt levels in accordance with the SGP criteria or if it might be necessary to undergo a process of debt restructuring or default. By analysing different scenarios where nominal interest rates on debt (r) and nominal growth rates (n) as well as gaps thereof (r-n), herein called the automatic debt dynamics, are varied, this paper comes to the conclusion, that debt restructuring or default is a likely outcome for some of the PIIGS; arithmetics is in particular playing against Greece. As disillusioning and disappointing this outcome might be for some observers, it could be the starting point for a more credible set of rules for the SGP, which the author deems to remain a crucial component in any institutional set-up within the eurozone.

scholarly journals The Stability Pact: Safeguarding the Credibility of the European Central Bank

1998 ◽  
Vol 163 ◽  
pp. 87-98 ◽  
Author(s):  
Michael Artis ◽  
Bernhard Winkler
Keyword(s):  
Central Bank ◽  
Monetary Union ◽  
European Monetary Union ◽  
European Central Bank ◽  
Policy Coordination ◽  
European Monetary ◽  
Fiscal Discipline ◽  
European Central ◽  
Stability Pact ◽  
The Stability

The ‘Stability Pact’ agreed at the Dublin Summit in December 1996 and concluded at the Amsterdam European Council in June 1997 prescribes sanctions for countries that breach the Maastricht deficit ceiling in stage three of European Monetary Union. This paper explores the central provisions and possible motivations of the Stability Pact as an incentive device for fiscal discipline and as a partial substitute for policy coordination and a common 'stability culture’.

scholarly journals Avoiding the Inappropriate: The European Commission and Sanctions under the Stability and Growth Pact

2021 ◽  
Vol 9 (2) ◽  
pp. 163-172
Author(s):  
Martin Sacher
Keyword(s):  
Sovereign Debt ◽  
Debt Crisis ◽  
Process Tracing ◽  
Fiscal Rules ◽  
Economic And Monetary Union ◽  
Stability And Growth Pact ◽  
Sovereign Debt Crisis ◽  
Full Extent ◽  
Growth Pact ◽  
The Stability

Fiscal policy surveillance, including the possibility to impose financial sanctions, has been an important feature of Economic and Monetary Union since its inception. With the reform of fiscal rules in the aftermath of the financial and sovereign debt crisis, coercive provisions have been made stricter and the Commission has formally gained power vis-à-vis the Council. Nevertheless, sanctions under the Stability and Growth Pact for budgetary non-compliance have so far not been imposed. This article asks why the Commission has until now refrained from proposing such sanctions. Using minimalist process-tracing methods, three post-crisis cases in which the imposition of fines was possible, are analysed. Applying an adaptation of normative institutionalism, it is argued that the mechanism entitled “normative-strategic minimum enforcement” provides an explanation of why no sanctions are imposed in the cases studied: Given that the Commission does not perceive punitive action as appropriate, it strategically refrains from applying the enforcement provisions to their full extent.

scholarly journals The Euro And The European Debt Crisis

2013 ◽  
Vol 13 (1) ◽  
pp. 103
Author(s):  
Douglas Castleberry ◽  
Balasundram Maniam ◽  
Geetha Subramaniam
Keyword(s):  
Financial Crisis ◽  
Monetary Union ◽  
European Monetary Union ◽  
European Central Bank ◽  
Debt Crisis ◽  
Domino Effect ◽  
European Monetary ◽  
European Central ◽  
History Of ◽  
Set Up

This paper studies the history of the Euro leading up to its inception, what happened after the Euro was introduced into circulation and implications for its future. The Euro was set up to accommodate a unified currency while preserving sovereignty among nations who, less than a century ago, were mortal enemies. Preserving sovereignty weakened the ability to respond to crisis by design, and it wasnt long before the limits of the European Monetary Union were tested after a series of financial crisis threatened the very existence of the Euro. The Euro held together, yet the inability of the European Central Bank to assist member nations control subsequent debt following the financial crisis may wound the ability of the Euro to replace the dollar as the dominant world currency or even prove fatal. Greece is on the verge of collapse, and is so entangled with other Euro nations; a systemic domino effect will occur should any of the troubled member Eurozone nations collapse uncontrollably. Three options remain for the European Monetary Union, banding together and preserving the currency, grossly indebted countries exiting to preserve the health of countries which are more fiscally responsible, or the Euro may land inconsequentially between success and failure, never challenging the power of the dollar as the dominant world currency.

scholarly journals Pitfalls of DSGE Model Approach in Monetary Union

2019 ◽  
Vol 10 (4) ◽  
pp. 369-382
Author(s):  
Zlatica Konôpková
Keyword(s):  
Monetary Union ◽  
European Monetary Union ◽  
Model Estimation ◽  
Dsge Model ◽  
European Monetary ◽  
Country Size ◽  
Policy Simulations ◽  
The Stability ◽  
The Impact ◽  
Model Approach

Abstract This paper investigates the impact of country size on the DSEG model estimation of the monetary union. Following DSGE model for fiscal policy simulations (FiMod) the union is considered to have a two-country structure, the investigated country has weight in union equal to its population share and the second country represents the rest of members. The model is estimated for different country sizes and it is found there are two areas of equilibrium instability which covers 11 of 19 European Monetary Union members. The result is in contrary with Stähler and Thomas (2012) who estimated FiMod for Spain and stated that model can be recalibrated to every member of the monetary union. According to the result the size of country matters and affects the stability of equilibrium. Therefore, special attention is paid to small economies in monetary union. The results and consequences are then discussed with examples from recent history.

scholarly journals The SGP – Faulty by Design or Made Faulty by Politicians? An Assessment Based on a Simulation Model

2014 ◽  
Vol 14 (3) ◽  
pp. 249-265
Author(s):  
Šárka Horáková ◽  
Robert Jahoda
Keyword(s):  
Public Debt ◽  
European Monetary Union ◽  
Budget Deficit ◽  
Real Data ◽  
Stability And Growth Pact ◽  
European Monetary ◽  
Fiscal Discipline ◽  
Growth Pact ◽  
The Impact ◽  
Initial Results

Abstract By joining the European Monetary Union (the “EMU”), member countries lost the ability to use monetary policy as a tool for macroeconomic regulation. The attention was then focused on regulation of fiscal policy and Stability and Growth Pact (the “SGP”) was the instrument agreed upon. The states of the EMU have agreed to meet the 3% of GDP requirement for the maximum annual public budget deficit. Based on evolution of public debt in member countries, we can say that the SGP has failed as a tool for fiscal discipline. In this paper, we answer the question of whether the failure was due to the incorrect concept of the SGP or whether the development of the debt was affected more by arbitrary disrespect of the agreed rules. The two reasons mentioned above are interdependent. To separate them, we construct a dynamic model of EU countries’ public debt. By using real data, we simulate the potential values of public debt in a situation where the SGP rules have been respected in recent years. Comparing the results for the potential debt given by simulation of the model with the current real values, we are able to quantify the impact of non-compliance for each country. The initial results indicate that there are both EU states where non-compliance led to a negligible increase in public debt - up to 7% of GDP - and other states where this factor caused the growth of public debt by more than 30% of GDP.

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