The lack of consistency in budget deficit criteria in the Stability and Growth Pact

Abstract

European public debt crisis led to a reversal of economic strategy for the policy makers. The lack of vision when choosing the budget deficit as an important factor in SGP has allowed a discretionary fiscal behavior for the member states. The budget deficit of the member states was strongly influenced by the cyclical component of the budget between 2002-2007, the reversing of the economic cycle creating the impossibility of rapid fiscal adjustments. Selecting the structural deficit as part of the Stability and Growth Pact would have allowed an early alert of fiscal imbalances and a resetting of economic strategy in the Member States.

Keywords

• Public debt crisis
• budget deficit
• Nash equilibrium
• fiscal policy
• monetary policy