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

discipline and/or fiscal sustainability. Compared to the first group, there is a broader
consensus that a common fiscal framework as such is necessary and useful. In particular, none
of the proposals favours a 'market solution', which highlights their conviction that without any
institutional mechanism things would be worse. The main critique advanced by the defenders
of fiscal discipline relates to the design of the old SGP, which they think was not instrumental
in achieving their favoured goal, also because of policy failures.

The proposals advanced by the second group are largely based on explicit theoretical models.
Very often they involve political economy considerations and provide empirical evidence
pointing to the lack of credibility and enforceability of the old SGP. The proposals
predominantly include suggestions for procedural and institutional changes aimed at
strengthening the SGP and taking into account the incentive structures of fiscal rules. In
particular, the second group includes most proposals suggesting that fiscal surveillance should
be entrusted to new and more independent fiscal institutions. Casella (1999), Wyplosz (2002),
and Eichengreen (2003) are particularly illustrative representatives of this group.

Wyplosz (2002) was among the first to launch and elaborate on the idea of independent fiscal
councils (IFPCs) as a solution to the fiscal co-ordination problem in EMU. In analogy to
monetary policy, he essentially proposes to free fiscal policy-making from political
interference, thereby addressing the basic credibility problem of the old SGP, i.e. the fact that
Member States judge their own policies through the Council of the European Union. Taking
into account the complexity of fiscal policy vis-à-vis monetary policy the IFPC would not
decide upon the size or the structure of the budget but ensure fiscal discipline by delivering
debt sustainability. While endorsing their desirability, Wyplosz (2002) admits that the
political feasibility of IFPCs may currently be limited. Variants on the independent council
proposal are also made by von Hagen (2002) and Fatas et al. (2003), who are also part of the
second group.

Eichengreen (2003) proposes to strengthen fiscal discipline by extending the focus of the SGP
to include the quality of national fiscal institutions. His suggestion draws on the results of the
empirical literature showing that national institutional arrangements are strongly correlated
with fiscal outcomes. Hence, the idea is to complement numerical deficit and debt rules with a
surveillance framework that encourages Member States to adopt procedures conducive to
sound public finances.

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