Abstract
This paper reviews how the European Union’s fiscal rules have developed from the Maastricht Treaty that established the single monetary policy up until today. It shows that the design of these rules did not always follow economic logic but often resulted from political constraints, giving rise to some flaws in the framework from its very beginning. At the same time, the repeated attempts to adjust the fiscal framework to a multitude of circumstances over the past 25 years have made it overly complex and incoherent. Based on a finding that euro area countries’ compliance with the EU fiscal rules has been unsatisfactory, the paper concludes that in its current shape the Stability and Growth Pact is an insufficient disciplining device in good economic times, with the consequence that there are no fiscal buffers, in particular in high-debt countries, such that growth can be supported in economic troughs. Based on this finding, the paper reviews reform options for making the fiscal framework more effective in bringing about sounder public finances and avoiding the pro-cyclicality observed over the past two decades.
Acknowledgements
We thank Alessandro Giovannini, Stephan Haroutunian, Hans-Joachim Klöckers, Patrick Lunz and Sander Tordoir for very helpful comments. Data support from Alessandra Palazzo is gratefully acknowledged.
References
Benassy-Quere, A., M. Brunnermeier, H. Enderlein, E. Fahri, M. Fratzscher, C. Fuest, P.-O. Gourinchas, P. Martin, F. Pisani, H. Rey, I. Schnabel, N. Veron, B. Weder Di Mauro (2018), Reconciling Risk Sharing and Market Discipline: A Constructive Approach to Euro Area Reform. CEPR Policy Insight 91.Search in Google Scholar
Darvas, Z., P. Martin, X. Ragot (2018), The Economic Case for an Expenditure Rule in Europe. VoxEU, CEPR policy portal, 12 September 2018.Search in Google Scholar
Delors Committee (1989), Report on Economic and Monetary Union in the European Community. Prepared by the Committee for the study of Economic and Monetary Union and chaired by J. Delors.Search in Google Scholar
Deroose, S., N. Carnot, L. Pench, G. Mourre (2018), EU fiscal rules: Root Causes of Its Complexity. VoxEU, CEPR policy portal, 14 September 2018.Search in Google Scholar
Deutsche Bundesbank (2017), Design and Implementation of the European Fiscal Rules. Monthly Bulletin, June.Search in Google Scholar
ECB (2015), Flexibility within the Stability and Growth Pact. Economic Bulletin 3: 33–35. Frankfurt.Search in Google Scholar
ECB (2016a), The Euro Area Fiscal Stance. Economic Bulletin 3: 68–87. Frankfurt.Search in Google Scholar
ECB (2016b), Government Debt Reduction Strategies in the Euro Area. Economic Bulletin 4: 1–20. Frankfurt.Search in Google Scholar
ECB (2018), Country-Specific Recommendations for Fiscal Policies Under the 2018 European Semester. Economic Bulletin 4: 55–59. Frankfurt.Search in Google Scholar
Enderlein, H., E. Rubio (2014), 25 Years after the Delors Report: Which Lessons for Economic and Monetary Union? Policy Paper 109, Jacques Delors Institute.Search in Google Scholar
Eurogroup (2016), Statement on the Draft Budgetary Plans for 2017. Brussels.Search in Google Scholar
Eurogroup (2017), Statement on the Draft Budgetary Plans for 2018. Brussels.Search in Google Scholar
European Commission (2017a), 2018 Draft Budgetary Plans: Overall Assessment. Brussels.Search in Google Scholar
European Commission (2017b), Vade Mecum to the SGP. Brussels.Search in Google Scholar
European Commission (2017c), Reflection paper on the deepending of the economic and monetary union. Brussels.Search in Google Scholar
European Commission (2018), Proposal for a Regulation of the European Parliament and of the Council on the Establishment of a European Investment Stabilisation Function. Brussels.Search in Google Scholar
European Commission (2019), Recent developments in the fiscal surveillance framework, in: Report on public finance in EMU 2018. Brussels.Search in Google Scholar
European Court of Auditors (2018), Is the main objective of the preventive arm of the Stability and Growth Pact delivered? 18/2018.Search in Google Scholar
European Fiscal Board (2017), 2017 Annual Report of the European Fiscal Board. Brussels.Search in Google Scholar
Eyraud, L., X. Debrun, A. Hodge, V. Lledo, C. Pattillo (2018), Second-Generation Fiscal Rules: Balancing Simplicity, Flexibility and Enforceability. IMF Staff Discussion Note 18/04.10.5089/9781484350683.006Search in Google Scholar
Eyraud, L., T. Wu (2015), Playing by the Rules: Reforming Fiscal Governance in Europe. IMF Working Paper 15/67.10.5089/9781484300282.001Search in Google Scholar
Fagan, G., J. Henry, R. Mestre (2001), An Area-Wide Model (AWM) for the Euro Area. ECB Working Paper 42.10.2139/ssrn.356003Search in Google Scholar
The Federal Government of Germany (2018), Meseberg Declaration. https://www.bundesregierung.de/Content/EN/Pressemitteilungen/BPA/2018/2018-06-19-meseberg-declaration.htmlSearch in Google Scholar
Feld, L., C. Schmidt, I. Schnabel, V. Wieland (2018), Refocusing the European Fiscal Framework. VoxEU, CEPR policy portal, 12 September 2018.Search in Google Scholar
Hauptmeier, S., C. Kamps (2019), The Stability and Growth Pact’s Debt Rule Revisited. ECB Working Paper (forthcoming).Search in Google Scholar
James, H. (2016), Karl-Otto Pöhl: The Pole Position. in: K. Dyson, I. Maes (eds.), Architects of the Euro. Oxford: Oxford University Press.10.1093/acprof:oso/9780198735915.003.0008Search in Google Scholar
Kamps, C., R. de Stefani, N. Leiner-Killinger, R. Rüffer, D. Sondermann (2014), The Identification of Fiscal and Macroeconomic Imbalances. ECB Occasional Paper 157.Search in Google Scholar
Kamps, C., J. Cimadomo, S. Hauptmeier, N. Leiner-Killinger (2017), Reflections on the Euro Area Fiscal Stance. Intereconomics 52: 125–131.10.1007/s10272-017-0660-0Search in Google Scholar
National Audit Office (2008), The Use of Sanctions and Rewards in the Public Sector. London.Search in Google Scholar
Paredes, J., D.J. Pedregal, J.J. Perez (2009), A quarterly fiscal database for the euro area based on intra-annual fiscal information. ECB Working Paper 1132, Frankfurt.10.2139/ssrn.1520524Search in Google Scholar
Wieser, T. (2018), Fiscal Rules and the Role of the Commission. VoxEU, CEPR policy portal, 21 May 2018.Search in Google Scholar
Wyplosz, C. (2012), Fiscal Rules: Theoretical Issues and Historical Experiences. NBER Working Paper 17884.10.3386/w17884Search in Google Scholar
Wyplosz, C. (2013), Europe’s Quest for Fiscal Discipline. European Economy, Economic Paper 498, Brussels.Search in Google Scholar
Notes
The views expressed herein are those of the authors and do not necessarily reflect the views of the ECB and the Eurosystem.
This article is part of the special issue “20 Jahre European Monetary Union” published in the Journal of Economics and Statistics. Access to further articles of this special issue can be obtained at www.degruyter.com/journals/jbnst.
© 2019 Oldenbourg Wissenschaftsverlag GmbH, Published by De Gruyter Oldenbourg, Berlin/Boston
