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The New Stability and Growth Pact: Primum non nocere. CEPS Working Document No. 344, March 2011

Fioramanti, Marco and Vicarelli., Claudio (2011) The New Stability and Growth Pact: Primum non nocere. CEPS Working Document No. 344, March 2011. [Working Paper]

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    Abstract

    The recent economic and financial crises have shown the weakness of EU economic governance. A process of strengthening macroeconomic and fiscal surveillance started in the course of 2010; the European Commission, among other proposals, suggested a new binding criterion of debt reduction: debt-to-GDP ratio is to be considered sufficiently diminishing if its distance with respect to the 60% of GDP reference value has reduced over the previous three years at a rate of the order of one-twentieth per year. In this paper we try to evaluate, with the support of the Oxford Economic Global Model, the economic consequences of the simultaneous attempt of all euro area countries to fulfill this one-twentieth criterion in the 2011-2015 period. Simulation results show that the mechanical application of the debt rule proposed by the European Commission would be only marginally efficient in reducing the debt to GDP ratio at best, but with high costs represented by the loss of flexibility, and counterproductive at worst.

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    Item Type: Working Paper
    Subjects for non-EU documents: EU policies and themes > Policies & related activities > Lisbon StrategyAgenda/Partnership for Growth and Employment
    EU policies and themes > Policies & related activities > economic and financial affairs > Stability and Growth Pact
    EU policies and themes > Policies & related activities > economic and financial affairs > financial crisis 2008-on and consequences/reforms
    Subjects for EU documents: UNSPECIFIED
    EU Series and Periodicals: UNSPECIFIED
    EU Annual Reports: UNSPECIFIED
    Series: Series > Centre for European Policy Studies (Brussels) > CEPS Working Documents
    Depositing User: Phil Wilkin
    Official EU Document: No
    Language: English
    Date Deposited: 04 Apr 2011 09:54
    Number of Pages: 12
    Last Modified: 04 Apr 2011 09:54
    URI: http://aei.pitt.edu/id/eprint/30824

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