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Berthold Busch / Björn Kauder IW-Analyse No. 142 3. March 2021 On Reforming the Stability and Growth Pact: Stocktaking and Proposals for More Fiscal Discipline in Europe

The member states of the Eurozone are countering the economic impact of the Covid 19 pandemic with heavy spending. In response to this exceptional situation the rules of the Stability and Growth Pact have been temporarily suspended.

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Stocktaking and Proposals for More Fiscal Discipline in Europe
Berthold Busch / Björn Kauder IW-Analyse No. 142 3. March 2021

On Reforming the Stability and Growth Pact: Stocktaking and Proposals for More Fiscal Discipline in Europe

IW-Analyse

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German Economic Institute German Economic Institute

The member states of the Eurozone are countering the economic impact of the Covid 19 pandemic with heavy spending. In response to this exceptional situation the rules of the Stability and Growth Pact have been temporarily suspended.


In the long run, however, economic and monetary union will not be able to function without effective controls, and especially without rules for a sustainable fiscal policy to prevent disarray in public finances causing crises in the member states. Overall, the Pact has not fulfilled its aim, a failure especially evident in the case of sovereign debt, which in some countries is so high as to leave little scope for additional borrowing. This state of affairs has largely shaped discussion of the form that aid for the countries particularly affected by the economic consequences of the Corona pandemic should take. There is widespread agreement that the regulations of the Stability and Growth Pact have become too confusing and too complicated, so that reforms are needed. One approach could be to orient government spending on medium-term growth in potential output in conjunction with a debt ratio target and a roadmap for how to reach it.

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Stocktaking and Proposals for More Fiscal Discipline in Europe
Berthold Busch / Björn Kauder IW-Analyse No. 142 3. March 2021

Berthold Busch / Björn Kauder: Der Stabilitäts- und Wachstumspakt – Bestandsaufnahme und Vorschläge für mehr fiskalpolitische Disziplin in Europa

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German Economic Institute German Economic Institute

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