Ec4024 Lecture13: The Stability and Growth Pact: Time to Break the Rules?
THE STABILITY & GROWTH
PACT: TIME TO BREAK THE
Dr Stephen Kinsella | email@example.com |stephenkinsella.net
Domestic & International Money Markets
what it is
how it works
We should think about changing it
WHAT IS THE SGP?
Articles 99 & 104 of EC/
Carrots & Sticks for
implementation of ﬁscal
1. Budget Deﬁcit < 3% of
2. National Debt < 60% of
3. ...and more
HOW DOES IT WORK?
Directorate-General for Economic
and Financial Affairs monitors EU
Apply Maastricht criteria
If Pass, then OK
If Fail, then not OK-> Excessive
Deﬁcit Procedure & Sanctions
Ireland’s Budget Deﬁcit as a % of GDP
2007 2008 2009 2010 2011 2012 2013
General Govt. Revenue-General Govt expenditure, %GDP
EU: Public Finances in EMU, 2008:222
Applied over 7 countries in
Applied to Ireland in Feb this
Ireland’s deﬁcit at 6.3%+
Ireland’s debt:GDP ratio will
increase above 60% in 2010
PRIORITIES OF SGP
Medium term budgetary position of ‘close to surplus’
Sustainability of ‘Quality’ Public Finances
Achieve low core inﬂation through ﬁscal prudence
‘Normal’ vs ‘Exceptional’ economic conditions
PROBLEMS WITH SGP
Rules applied over 1 year, not over a Business Cycle (YET).
Rules inconsistently applied (Portugal vs. France)
Deﬁnition of ‘close’, ‘temporary’, and ‘exceptional’
TIME TO BREAK THE RULES
WITH A GRIN?
Rules constrain Irish ﬁscal policy greatly
stop us entering into any kind of expansionary policy
Not good in this situation, see Cournot paper.
Why? Monetary Policy can’t support Fiscal Policy in Ireland
and Defunct States:
Ireland and Iceland