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N° 224 |
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| June 2003 |
| The Stability Pact: Two Objectives, Two Rules |
| Agnès Bénassy-Quéré |
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| The recent amendment to the Stability and Growth Pact places greater emphasis on automatic stabilisers, but it will not prevent Germany and France from transgressing the Pact's new rules, as well as its previous rules. The question of whether the Pact's surveillance instruments of fiscal policy are appropriate to its two missions remains open. The 3% cap on budget deficits is a poor way of warning of insolvency or preventing national fiscal policies from constraining monetary policy in the eurozone. Several ideas have been put forward for rules that are better adapted to meeting these objectives. As far as the second objective is concerned, this article proposes that the overall balance of savings and investment of each Member State should be monitored, rather than the public fiscal deficit. This would make it possible to identify when fiscal policy may be too tight to prevent a deflationary spiral from occurring. Such a policy would also facilitate the coordination of fiscal and monetary policies.
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