Article

The "New" Stability and Growth Pact: More Flexible, Less Stupid?

CEMPRE, Faculdade de Economia do Porto, Universidade do Porto
Intereconomics: Review of European Economic Policy 02/2007; 42(4):218-225.
Source: RePEc

ABSTRACT Since the beginning of the European single currency project, the adoption of fiscal binding rules, restraining the use of the single policy instrument left for national authorities, has been challenged by many authors and politicians. The discussion has been rekindled in recent years, following a period of economic recession or stagnation in several Member-Countries and some criticisms linking the Stability and Growth Pact (SGP) to the general economic situation. Some of the questions raised by those who criticised the initial framework for fiscal discipline may have been taken into account in the recent revision of the SGP (March 2005), which followed the suspension of the Pact for Germany and France and eventually made the SGP more flexible and “less stupid”. In this paper, we evaluate the changes contained in the “new” SGP, by taking account of the properties for ideal fiscal rules put forward by Kopits and Symansky (1998) and comparing with some recently published studies on the same topic. The main result of our analysis points towards a clear increase in flexibility together with the probable emergence of new enforcement problems. In this context, an insufficient output in terms of fiscal discipline could arise, leading to the need for new improvements within the European framework for the definition and implementation of national fiscal policies.

0 Bookmarks
 · 
55 Views
  • Source
    [Show abstract] [Hide abstract]
    ABSTRACT: Economia (sem parte escolar) DOCTORAL IN ECONOMICS A constatação da existência de um desequilíbrio importante entre as vertentes política e económica do processo de integração europeia, com a primeira num clima de debilidade e a seg unda quase no limite máximo, constitui o ponto de partida para a presente dissertação. Associando-se tal situação aos principais défices actuais da União Europeia (UE) de competitividade, crescimento e emprego, de peso político , de participação e legitimidade democrática, e de capacidade de decisão e acção e ao actual modelo de organização política, institucional e económica da União, argumenta-se a favor de uma profunda mudança no mesmo. Nesse contexto, são observados vários modelos sugeridos no passado recente, com base numa análise custo-benefício assente nas respostas dos mesmos aos binómios unidade/diversidade e flexibilidade/compromisso . Associando a ess a análise alguns elementos históricos e o êxito do modelo federal em sociedades com larga diversidade, argumenta-se a favor da evolução da UE para uma Federação de Estados-Nação fortemente descentralizada, baseada numa Constitu ição e com organização institucional federal, cujas características básicas são descritas. Nota-se adicionalmente que a mudança para este modelo deverá ser acompanhada por alterações importantes ao nível económico. Confrontando a literatura do federalismo fiscal com a actual situação ao nível da definição e implementaç ão das políticas orçamentais nacionais e ao nível da composição e aplicação do orçamento comunitário, conclui-se que a UE se encontra ainda bastante longe de uma situação de federalismo orçamental. Neste âmbito, procede-se a um c onjunto de sugestões de mudança a dois níveis temporais distintos. No médio e longo prazo, aponta-se para a necessidade de alargamento da dimensão e de alterações no modo de financiamento do orçamento comunitário, incluindo-se a sugestão de criação de um novo recurso próprio assente na tributaçã o do rendimento individual, como forma de possibilitar uma resposta eficiente aos novos desafios da União e de permitir algum exercício da função de estabilização macroeconómica ao nível central. No curto prazo, aponta-se para a necessidade de alteração ao enquadramento institucional relativo à coordenação das políticas macroeconómicas, de construção de um mecanismo limitado de absorção de choques assimétricos, e de uma r eforma mais credível do Pacto de Estabilidade e Crescimento, incluindo a possibilidade de diferenciação temporária das regras de disciplina orçamental, em função da dimensão e do nível de desenvolvimento dos Estados-Membros, e de tratamento mais favorável dos incentivos à Investigação e Desenvolvimento, sugestões assentes na apresentação e resolução numérica de um modelo de união monetária a dois países. The existence of an important disequilibrium between the two faces economic and political of the process of European integration is the departing point of this thesis. By associating such disequilibrium with the major present deficits in the EU of competitiveness, growth and employment; of political weight; of participation and democratic legitimacy; of capacity for decision and action and the present model of political, institutional and economic organisation, we argue for a profound change in such model. In this context, we analyse several models that have been suggested for the case of the EU in the last years. A cost-benefit analysis is thus carried and based on the capacity of these models to deal with two essential binomials unity/diversity and flexibility/compromise. By adding several elements from the European history and the success shown by federal models in societies with large diversity, we argue for an evolution of the EU towards a highly decentralised Federation of Nation-States . This Federation should be based on a true Constitution whose characteristics we describe, together with those of a federal organisation. We also note that the evolution towards this model should be accompanied with important changes at the economic level. By comparing the theory of fiscal federalism with the current situation in terms of the definition and implementation of national fiscal policies and of the composition and use of the European budget, we conclude that the EU is still far away from the case of fiscal federalism and that several changes should happen at two distinct temporal levels. In the medium to long term, we call for an important enlargement of the EU budget together with substantial changes in its financing, including the creation of a new own resource based on individual income taxation. This measure would raise the capacity of the EU to deal with its new challenges and allow the EU to have a significant role in terms of macroeconomic stabilisation. In the short run, we argue for a relevant change in the institutional framework for the coordination of macroeconomic policies, the creation of a limited shock-absorber mechanism and a more credible reform of the Stability and Growth Pact. This reform would allow for a temporary differentiation of fiscal discipline rules, by taking into account the economic dimension and level of development of the Member-Countries, and for a more favourable treatment of public expenses related to Research and Development, with these suggestions sustained by the numerical solution of a model of monetary union with two countries.
  • Source
    [Show abstract] [Hide abstract]
    ABSTRACT: The term "convergence" refers to two different macroeconomic issues: the cross-country convergence in the level of output, occurring as the result of the catch-up process, and the convergence of a set of macroeconomic fundamentals among a given set of countries, which can be seen as either a prerequisite for, or as the outcome of, a successful monetary integration agreement. This paper deals with the latter kind of convergence, whose theoretical foundations should be sought in the theory of the Optimum Currency Areas (OCAs). After reviewing the "old" and "new" theory of OCA, the paper singles out their implications in terms of "macroeconomic convergence" and "macroeconomic policy convergence", and discusses these implications both at a general level, and with reference to the CEMAC countries. The paper addresses in particular two questions: is CEMAC an OCA, or is it becoming an OCA through an "endogenous" process (as assumed by "new" OCA theory)? How successful has been the multilateral surveillance programme set up by the CEMAC treaty, and how consistent is it with the indications coming from economic theory? This analysis allows us to put the economic performance of CEMAC in the right perspective, and to single out some policy actions which could be taken in order to foster growth in the area. Keywords: F33 International monetary arrangements and institutions; F36 Financial aspects of economic integration; H60 National budget, deficit and debt E31 -Price level; inflation; deflation E32 -Business fluctuations; cycles Paper presented at the UNECA workshop "Enhancing the capacity of member States to achieve macroeconomic policy convergence in Central and Western Africa", Ouagadougou (Burkina Faso), June 29-July 2, 2010. The authors wishes to thanks the workshop participants and in particular Oumar Djallo, Kodjo Evlo and Patrizio Tirelli, for their useful remarks, as well as Séverin Kamgna for his valuable help in collecting the data. The usual disclaimer applies.
  • Source
    [Show abstract] [Hide abstract]
    ABSTRACT: We develop a general equilibrium endogenous growth model of a monetary union between two countries that differ in economic dimension and level of development. By solving transitional dynamics towards the steady state, we examine the impact of fiscal shocks that may lead to excessive deficits. Results suggest that the individual and the whole impact of such deficits depend on which country they occur. In such context, we argue that the small and less developed country should be allowed to temporarily run an excessive deficit, in order to improve economic convergence within the union.
    Applied Economics 01/2009; 41(7):849-858. · 0.46 Impact Factor

Full-text (2 Sources)

View
9 Downloads
Available from
May 27, 2014