101 Proposals to reform the Stability and Growth Pact. Why so many? A Survey



November 2003. The common cement in this group is the view that fiscal discipline should
not and cannot be the only scope of the SGP. Consequently, other policy aims, in particular
short-term stabilisation, are advocated as well. Prominent representatives of the first group are
Alesina (2001), Uhlig (2002), Calmfors (2003) and Tanzi (2004).

Tanzi (2004) is among those who show sympathy for the idea that fiscal policy coordination
in a monetary union could be left to market forces, i.e. to the decisions of rating agencies.
Such an approach does not necessarily follow from a religious belief in market forces but
from the conclusion that all fiscal rules are of little help unless they are totally and
constitutionally binding, which in Tanzi's view is rarely the case.

Uhlig (2002) also questions the credibility of the EU fiscal framework, in particular the
credibility of the sanctions to be imposed on countries which violate the obligations of the
SGP. However, unlike Tanzi (2004), he proposes to strengthen the framework by replacing
the discretionary rule of the ECOFIN Council by (i) automatic rules and (ii) the possibility for
any European citizen to take the EU to court and demand the imposition of penalty payments.

Calmfors (2003) is a prominent representative of those who fully acknowledge the importance
of fiscal rules as means to enhance fiscal discipline but who also point out that the SGP may
increase output volatility because it hampers stabilisation efforts in downswings and does not
provide sufficiently strong incentives to consolidate public finances in economic good times.
Against this backdrop, he advocates modifications which allow the automatic stabilisers to
operate fully and provide sufficient leeway for discretionary fiscal policy actions especially in
the wake of large idiosyncratic shocks or large common shocks where monetary policy needs
to be complemented by fiscal policy.

Alesina (2001) argues that EU budgetary surveillance should worry less about the first or
second decimal of the Member States' deficit figure. In his view, the focus should shift
towards government expenditure, which in recent years had reached levels that rather hamper
economic growth than improve the distribution of income.

Defenders of fiscal discipline: The second group encompasses 19 economists who could be
called
defenders of fiscal discipline. Most of them entered the scene at the beginning of 2003
when the strain on the SGP became more tangible. The group includes a relatively large share
of academic economists (more than two thirds as compared to an overall share of 60 %). They
are unified by the insight that the set of rules of the old SGP was not sufficiently effective in
achieving what they predominantly perceive as the main aim of the SGP, notably fiscal
-16-



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