Maastricht’s Fiscal Rules at Ten: An Assessment

Buti, Marco; Giudice, Gabriele

doi:10.1111/1468-5965.00399

Cited by 91 publications

(25 citation statements)

References 31 publications

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“…Excessive government borrowing would be addressed in EMU's institutional design through the Stability and Growth Pact (SGP) and a 'no bailout' clause. However, some doubted whether the SGP possessed the credible threat against over-borrowing of its predecessor since, in contrast to the Maastricht criteria, failure to comply with the SGP would not result in EMU exclusion (Buti and Giudice, 2002;Johnston, 2012). Moreover, as Baskaran and Hessami (2012) and Arghyrou and Kontonikas (2010) argue, relaxation of the SGP's fiscal rules by France and Germany led to soft budget constraints after 2004, and further enabled the high deficit nations to succumb to 'binge' borrowing, as markets discounted for the best case scenario for convergence even when some nations were showing signs of fiscal deterioration.…”

Section: Making Sense Of Europe's Sovereign Debt Crisismentioning

confidence: 99%

Comparative Institutional Advantage in the European Sovereign Debt Crisis

Johnston

Hancké

Pant

2014

Comparative Political Studies

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Excessive fiscal spending is commonly cited as a primary cause of the current European sovereign debt crisis. We develop an alternative hypothesis which better accounts for systemic differences towards EMU countries' exposure to market speculation: the rise of competitiveness imbalances which contributed to national imbalances in total borrowing. We outline that one driver of competitiveness divergence is a country's capacity to limit sheltered sector wage growth, relative to wage growth in the manufacturing sector. We posit that corporatist institutions which linked sectoral wage developments together in the surplus countries provided them with a comparative wage advantage vis-à-vis EMU's debtor nations, explaining why the EMU core has emerged relatively unscathed from market speculation during the crisis despite that fact that some of these countries had poor fiscal performances during EMU's early years. Using a panel regression analysis, we demonstrate that rising differentials between public and manufacturing sector wage growth, as well as wage governance institutions which weakly coordinate exposed and sheltered sectors, are significantly correlated with export decline. We also find that weak governance institutions are significantly associated with more prominent export decline inside a monetary union, compared to outside of monetary union.

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Section: Making Sense Of Europe's Sovereign Debt Crisismentioning

confidence: 99%

Comparative Institutional Advantage in the European Sovereign Debt Crisis

Johnston

Hancké

Pant

2014

Comparative Political Studies

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“…In the end, the participating countries were desgnated according to political criteria. The …scal requirements were then reiterated in the SGP (BUTI 2002 JCommMarkStudies with solution), which remained the only defence line against the possible lack of discipline of the national governments. The aims of the Pact was …rst, to ensure a policy framework based on low in ‡ation and economic stability and second, to protect the European Central Bank from potential pressure for debt bailouts coming from the national governments.…”

Section: Economic Arguments Supporting the Sgpmentioning

confidence: 99%

“…The correct or incomplete implementation can be attributed to several factors, some of which are summarized by Buti and Giudice (2002). First, the requirement of budget close to balance or in surplus in the medium run is confronted with the lack of consensus of how an output gap, and therefore a structural balance, should be measured.…”

Section: Why the Sgp Is Under Pressure And The Maaastricht Criteriamentioning

confidence: 99%

The Economic Importance of Fiscal Rules

Artis¹,

Onorante²

2007

The Travails of the Eurozone

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The objective of this study is to investigate the e¤ect of the Stability and Growth Pact (SGP) for the cycle, the in ‡ation and the sustainability of the public …nances of the Euro Area. We contribute to the debate by estimating national and Euro-area structural VARS, and by using them in order to evaluate the consequences of the modi…cations to the SGP that have recently been proposed. The SVARs are identi…ed via a mix of short and long run restrictions that are relatively uncontroversial and compatible with most theoretical models of …scal policy; they also allow simultaneous modeling of …scal and monetary policy in order to avoid misspeci…cation.The comparison among the di¤erent scenarios highlights the necessity of keeping both the preventive (peer pressure) and the restrictive arm of the pact, because the 3% threshold alone is a necessary but possibly insu¢cient condition to ensure the sustainability of public …nances. IntroductionThe objective of this study is to investigate the consequences of the Stability and Growth Pact (SGP) for the cycle, the in ‡ation and the sustainability of the public …nances of the Euro Area. We contribute to the debate by estimating national and Euro-area structural VARS, and by using them in order to evaluate the consequences of the modi…cations to the SGP that have recently been proposed. The SVARs are identi…ed via a mix of short and long run restrictions that are relatively uncontroversial and compatible with most theoretical models of …scal policy; they also allow simultaneous modeling of …scal and monetary policy in order to avoid misspeci…cation.¤ I would like to thank Mike Artis for his supervision and useful comments and discussion; Roberto Perotti for discussing with me the very basic ideas underlying the paper; Jürgen von Hagen and Carlo Favero for very useful insights.All mistakes are mine. The work on this paper was conducted during a visit to the European Central Bank.The wiews expressed in this paper are mine and do not necessarily re ‡ect those of the host institution.

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“…We will draw on the standard analytical framework by which the EMU macroeconomic governance is usually analysed (BUTI ET AL., 2001; BUTI AND GIUDICE, 2002 The aggregate supply function is the standard one:…”

Section: Macroeconomic Governance Under the Stability And Growth Pactmentioning

confidence: 99%

Fiscal policy in Europe and the Stability and Growth Pact

Farina¹,

Ricciuti²

2007

REUFF

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-The paper investigates how European fiscal authorities behaved in the last decades -namely, under the constraint posited by the European Monetary Systems during the 1980s, the Maastricht Treaty during the 1990s, and the Stability and Growth Pact (SGP) later on -also taking into account monetary and fiscal policy interactions. We argue that the traditional measure used for evaluating fiscal policy -the cyclically-adjusted public budget (CAPB) -is a too rough indicator of the fiscal stance as a function of the two objectives of output stabilization and debt decumulation. We construct two theoretical appraisals of the fiscal rule pursued by the government -Tax Smoothing and Expenditure Smoothing -and use them as dependent variables in our econometric estimates. Under quite plausible conditions, the compliance with the 3% limit on the public deficit / GDP ratio imposed by the SGP could imply the renounce during a downswing, not only to pursue discretionary fiscal policy but also to output stabilization by automatic stabilizers. We conclude that fiscal sustainability -that is the compliance with the intertemporal public budget constraint which is required to the fiscal authorities of the European Monetary Union (EMU) -stresses the objective of debt decumulation, thus creating a trade-off with the objective of output stabilization, especially for the high-debt EMU countries.

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Maastricht’s Fiscal Rules at Ten: An Assessment

Cited by 91 publications

References 31 publications

Comparative Institutional Advantage in the European Sovereign Debt Crisis

Comparative Institutional Advantage in the European Sovereign Debt Crisis

The Economic Importance of Fiscal Rules

Fiscal policy in Europe and the Stability and Growth Pact

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