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The 2005 Reform of the Stability and Growth Pact: Too Little, Too Late? Bruges European Economic Research (BEER) Papers 6/November 2006

Kostoris, Fiorella and Schioppa, Padoa (2006) The 2005 Reform of the Stability and Growth Pact: Too Little, Too Late? Bruges European Economic Research (BEER) Papers 6/November 2006. [Policy Paper]

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    Abstract

    This paper analyses the main critiques addressed by the literature and the policymakers to the 1997 Stability and Growth Pact. It further indicates to what extent the 2005 reform of the Pact meets those critics. It finally argues that the 2005 reform may be too little and arrive too late to restore the Pact credibility, ensure its enforceability and correctly set the derogations to the excessive deficit procedure on the nature of the shocks which cause the output gap rather than its size: a 3% of GDP limit on deficit spending may be a too binding constraint in front of a strongly negative demand shock, while it is irrationally large in front of a supply shock. Some empirical evidence is provided to identify in the last years strongly negative demand shocks from other shocks in the 25 EU Member States. Had this identifying method been adopted in November 2003, the European Commission and the Council would have both agreed to stop the excessive deficit procedure against Germany, but they would have both proceeded against France which apparently was not at the time hit by a strongly negative demand shock.

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    Item Type: Policy Paper
    Uncontrolled Keywords: economic and monetary union, fiscal policy, fiscal rules and stability and growth pact.
    Subjects for non-EU documents: EU policies and themes > Policies & related activities > economic and financial affairs > EMU/EMS/euro
    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 > fiscal policy
    Subjects for EU documents: UNSPECIFIED
    EU Series and Periodicals: UNSPECIFIED
    EU Annual Reports: UNSPECIFIED
    Series: Series > College of Europe (Brugge) > Bruges European Economic Research Papers (BEER)
    Depositing User: Phil Wilkin
    Official EU Document: No
    Language: English
    Date Deposited: 18 Dec 2014 13:09
    Number of Pages: 69
    Last Modified: 18 Dec 2014 13:09
    URI: http://aei.pitt.edu/id/eprint/58552

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