Tradable Deficit Permits: Efficient Implementation of the Stability Pacin the European Monetary Union

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’.

Download Full-text

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

Zeitschrift für Wirtschaftspolitik ◽

10.1515/zfwp-2006-0202 ◽

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.

Download Full-text

Pitfalls of DSGE Model Approach in Monetary Union

DANUBE Law and Economics Review ◽

10.2478/danb-2019-0019 ◽

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.

Download Full-text

Nominal and Real Convergence as a Determinant for Joining the European Monetary Union

ECONOMICS ◽

10.1515/eoik-2017-0011 ◽

2017 ◽

Vol 5 (1) ◽

pp. 52-71

Author(s):

Merim Kasumović ◽

Erna Heric

Keyword(s):

Central Bank ◽

Monetary Union ◽

European Monetary Union ◽

European Central Bank ◽

Financial Integration ◽

Convergence Criteria ◽

European Monetary ◽

European Central ◽

Real Convergence ◽

The Stability

Summary The thematic framework of this work is the nominal and real convergence as a determinant for joining the European monetary union. The focus of the work is to prove that realising the criteria of the convergence affects the stability of the European monetary union, that is, that the cause of destabilisation is exactly the fact that certain member nations have not realised the assigned convergence criteria. The financial integration is an important question because it contributes to the economic growth affecting free exchange with the goal of a more efficient allocation of capital; it is the result of the economic theory and the empirical research. Introducing the Euro as a single payment method while losing the monetary sovereignty of the countries which have accepted it is the main reason for forming the European Central Bank. The mission of the European Central Bank is to define and conduct a single monetary policy within the Eurozone. Because of the already mentioned facts, the challenges of conducting the fiscal policy within the Eurozone as well as the key aspects of the monetary unification of Europe have been analysed. The results of this analysis should point out the stability of the EMU by the convergence degree of the member nations from a single monetary area.

Download Full-text

Stock Market Downswing and the Stability of European Monetary Union Money Demand

Journal of Business and Economic Statistics ◽

10.1198/073500106000000369 ◽

2006 ◽

Vol 24 (4) ◽

pp. 395-402 ◽

Cited By ~ 55

Author(s):

Kai Carstensen

Keyword(s):

Stock Market ◽

Monetary Union ◽

Money Demand ◽

European Monetary Union ◽

European Monetary ◽

The Stability

Download Full-text

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

Acta Universitatis Agriculturae et Silviculturae Mendelianae Brunensis ◽

10.11118/actaun201159020155 ◽

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.

Download Full-text

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

Applied Economics and Finance ◽

10.11114/aef.v4i2.2136 ◽

2017 ◽

Vol 4 (2) ◽

pp. 76 ◽

Cited By ~ 1

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.

Download Full-text

The Announcement of Unconventional Monetary Policy and the Exit Risk in the European Monetary Union

International Journal of Economics and Finance ◽

10.5539/ijef.v10n4p95 ◽

2018 ◽

Vol 10 (4) ◽

pp. 95 ◽

Cited By ~ 1

Author(s):

Paolo Canofari ◽

Alessandra Marcelletti ◽

Giovanni Piersanti

Keyword(s):

Monetary Policy ◽

Exchange Rate ◽

Central Bank ◽

Monetary Union ◽

European Monetary Union ◽

Unconventional Monetary Policy ◽

European Monetary ◽

Opt Out ◽

Union Model ◽

The Stability

The introduction of unconventional monetary policy, pushing down the euro value, aims at strengthening the euro area, by increasing its competitiveness and boosting its economic growth. The goal of our paper is to offer a theoretical validation of these facts using a monetary union model in which a representative country and a common central bank strategically interact. The country can choose to stay in or opt out from the monetary union after a demand shock, while the central bank controls the exchange rate to preserve the stability of the union. Our main result is that the announcement of common exchange rate depreciation reduces the probability of a monetary union breakup.

Download Full-text