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.
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.
- Berthold Busch / Björn Kauder ·
- IW-Analyse No. 142 ·
- 3 March 2021