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18 - National Fiscal Policy in EMU

Insufficient Sustainability and Stabilization?

from Part III - The Economic and Fiscal Dimensions

Published online by Cambridge University Press:  28 September 2023

By
Jakob de Haan  and
Bram Gootjes
Edited by
Dariusz Adamski ,
Fabian Amtenbrink  and
Jakob de Haan
Dariusz Adamski
Affiliation:
University of Wroclaw
Fabian Amtenbrink
Affiliation:
Erasmus Universiteit Rotterdam
Jakob de Haan
Affiliation:
University of Groningen
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Summary

Two main goals of the Stability and Growth Pact (SGP) are fiscal sustainability and fiscal policies’ contribution to economic stabilization. However, from the very beginning, several Member States of the European Economic Monetary Union (EMU) failed to stay within the SGP’s reference values, all too often leading to large fiscal imbalances, procyclical fiscal policies, and public debt overhangs. The SGP has therefore been revised several times to improve the enforceability and flexibility of the fiscal rules. In practice, however, these amendments made the European fiscal framework overly complex and incoherent, leaving national governments with too little incentive to pursue a prudent fiscal stance. To (better) promote fiscal sustainability in the EMU, the current weaknesses of the SGP need to be addressed. Several options have been suggested, mainly to decentralize the responsibility for fiscal discipline back to the national level or to reform the current framework. Notably, the latter option seems more likely to be implemented. Most proposals suggest a prominent role for an expenditure rule, augmented with a debt anchor. These proposals make perfect sense, but a discussion on the effectiveness and reform of the SGP shows that they will not remedy all current shortcomings of the fiscal rules.

Type
Chapter
Information
The Cambridge Handbook of European Monetary, Economic and Financial Integration , pp. 332 - 348
Publisher: Cambridge University Press
Print publication year: 2023

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