The Stability Pact: Safeguarding the Credibility of the European Central Bank

Artis, Michael J.; Winkler, Bernhard

doi:10.1177/002795019816300110

Cited by 103 publications

(46 citation statements)

References 38 publications

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“…That rationale is well documented elsewhere (see for example Beetsma 2001, Fatas et al 2003, or Artis and Winkler 1997. The two fiscal criteria state that debt ratios must be below 60% (or converging to that level at a satisfactory pace), and that deficit ratios must be below 3% of GDP.…”

Section: Introductionmentioning

confidence: 87%

Debt, deficits, and the accession of the new member States to the Euro

Hallett

Lewis

2007

European Journal of Political Economy

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Section: Introductionmentioning

confidence: 87%

Debt, deficits, and the accession of the new member States to the Euro

Hallett

Lewis

2007

European Journal of Political Economy

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“…Overall, the fear has been expressed that "access to financing will be easier in the unified European capital market and (presumably) cheaper for high debt and deficit countries, no longer suffering national interest rate premia for devaluation and inflation risk. Abolishing national currencies removes the disciplining effect of international currency markets on national fiscal policies [...], even though bond markets may be expected to correctly price the remaining default risk" (Artis and Winkler 1997). As long as states have sufficient tax powers, the default premia will not be large enough to prevent unsustainable fiscal policy.…”

Section: Market Discipline or Stability And Growth Pact?mentioning

confidence: 99%

“…One rationale of the Pact is the protection of the monetary policy of the ECB, see e.g. Artis and Winkler (1997), Beetsma and Uhlig (1999), or Eichengreen and Wyplosz (1998). Excessive deficits and hence unsustainable debt of the member states of the monetary union could have detrimental effects on interest and inflation rates and would, therefore, endanger the objective of price stability pursued by the ECB.…”

Section: Introductionmentioning

confidence: 99%

Market Discipline and the Use of Government Bonds as Collateral in the Emu

Ullrich

2006

SSRN Journal

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Die Discussion Papers dienen einer möglichst schnellen Verbreitung von neueren Forschungsarbeiten des ZEW. Die Beiträge liegen in alleiniger Verantwortung der Autoren und stellen nicht notwendigerweise die Meinung des ZEW dar.Discussion Papers are intended to make results of ZEW research promptly available to other economists in order to encourage discussion and suggestions for revisions. The authors are solely responsible for the contents which do not necessarily represent the opinion of the ZEW.Download this ZEW Discussion Paper from our ftp server:ftp://ftp.zew.de/pub/zew-docs/dp/dp06046.pdf Non-technical SummaryThe confidence that financial markets can substantially restrict the debt behaviour of governments is not high. One reason for the lack of market discipline could be that the European Central Bank (ECB) accepts all government bonds of the EU governments at the same conditions as eligible for monetary policy transactions. A differentiation with respect to potentially varying risk levels is not given. This could support the idea that government bond in the EU are equally secure and have the same low default risk.The use of government bonds as collateral in monetary policy transactions with the ECB has declined since 1999. Even if the ECB has not yet excluded securities from the list of eligible assets, this list contains an explicit enumeration of eligible assets. All bonds issued from governments of the EU are contained in the class with the lowest risk, despite large differences in debt and deficit. The acceptance of all government bonds at the same conditions is not followed by the markets, as the ratings of private rating agencies show.The rating of the central bank and the rating of the private agencies can be seen as two signals about the default risk of government bonds. Because the central bank and the rating agencies are expected to devote a considerable amount of resources to the assessment of the default risk of government bonds, we assume that the institutions identify the risk correctly on average. However, the assessed risk will not be correct in any case.The extent to which rating signals affect investors' expectations about the default risk of government bonds will then depend on the relationship between the evaluation error of the institutions. An effect of the ECB classification of a government bond on the risk premium can only arise theoretically if the error of the ECB is independent from that of the rating agency. In case of unbiased signals of the ECB and the agency, and the ECB signal depending on that of the rating agency, investors would ignore the signal of the ECB.If financial markets see the ECB as an independent source of information with regard to the default risk of government bonds, the classification as eligible assets for monetary policy transactions could influence the risk premia of bonds. In this case, it could be that the registration as eligible assets of all government bonds of the EU leads to more uniform risk premia than without this signal. Market Discipline an...

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“…In fact, the almost complete reduction of risk premia on government bonds of high-debt countries in the run-up to stage three of EMU shows that the markets indeed anticipated a bail-out. The SGP hence appeared desirable as a way of 'safeguarding the credibility of ECB independence' (Artis and Winkler, 1997).…”

Section: Economic Spill-overmentioning

confidence: 99%

The Stability and Growth Pact - Theorizing a Case in European Integration*

Heipertz

Verdun

2005

JCMS: J Common Market Studies

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This article looks at the Stability and Growth Pact (SGP) as a case study in European integration. Applying the theoretical lenses of various European integration approaches (intergovernmentalism, domestic politics, neofunctionalism and an 'expertocratic' approach) it seeks to explain the creation of the SGP as well as its subsequent implementation. The findings show that these approaches are able to illuminate different parts of the process. The article thus argues that only an eclectic combination of the approaches provides a satisfactory theoretical explanation of the SGP as a fundamental element of the rules-based economic and monetary union (EMU) regime.

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The Stability Pact: Safeguarding the Credibility of the European Central Bank

Cited by 103 publications

References 38 publications

Debt, deficits, and the accession of the new member States to the Euro

Debt, deficits, and the accession of the new member States to the Euro

Market Discipline and the Use of Government Bonds as Collateral in the Emu

The Stability and Growth Pact - Theorizing a Case in European Integration*

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