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

There also seem to be some notable differences between views held inside and outside the
euro area, with the ‘outsiders’ being somewhat more critical of the various aspects of the old
SGP. Among the ‘insiders’, economists from academia exhibit a somewhat stronger
conviction about the importance of fiscal discipline, whereas non-academics seem to be more
inclined to prioritize other policy goals such as short-term stabilization or economic growth.

4. The reformed Stability and Growth Pact: eclectic or sectarian?

While there are clear and frequent interactions between economics and politics, it is the
privilege of policy-makers to draw their own conclusions on pending economic policy issues.
Thus, the intensive reform debate on the SGP among professional economists preceding the
actual reform measures may not necessarily be a faithful mirror of the policy discussion, let
alone of the actual steps taken by policy-makers.

In his section we try to briefly outline how many and which of the views aired in the
economics profession eventually made their way into the reformed 2005 SGP. The
foundations of the new Pact are laid out in the report ‘Improving the implementation of the
Stability and Growth Pact’ adopted by the ECOFIN Council on 20 March 2005. The two key
parameters that epitomised the old Pact, the 3 % of GDP reference value for the deficit and
the 60 % of GDP reference value for the debt, remained untouched, not least because they are
part of the EU Treaty, a modification of which would have been more difficult to achieve.
However, the safeguarding of the two reference values went along with a series of significant
modifications of the secondary legislation shaping the implementation of the Pact. A detailed
overview of the 2005 modifications is presented in European Commission (2005).

The main modifications aim to improving the economic rationale underlying the fiscal rules
and their implementation. The lack of economic rationale was a criticism advanced by policy-
markers and professional economists alike. A great many of the 101 reform proposals
examined here hold the view that some elements of the SGP did not actually make much
sense from an economic point of view, including the fact that a one-size-fits-all rule would
not sufficiently account for differences across countries. The reformed SGP takes account of
this criticism by providing more room for country-specific considerations, in both its
preventive and its corrective arms.

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