Reform of the Stability and Growth Pact

Abstract

In conditions of the single monetary policy and the decentralised fiscal policy in the European Monetary Union (EMU) it is necessary for the coordination of macroeconomic policy to be strengthened. The Treaty on European Union imposes conditions that relate to the size of the budgetary deficit and the public debt as criteria for the introduction of the euro in a given country. The Stability and Growth Pact (SGP) sets the fiscal framework of the European Monetary Union based on rules underpinned by these criteria. Thus the SGP, as a kind of economic policy-coordination mechanism, has the task of ensuring fiscal discipline among the Member States of the EMU. The objective of this paper is to describe the recent reform of the Stability and Growth Pact that arose as a result of deficiencies observed in the original version of the Pact of 1997.

Keywords

• Stability and Growth Pact
• European Monetary Union
• coordination of monetary and fiscal policy
• fiscal rules