2. Changing circumstances - from debt to growth : Another factor behind the multiplicity is
changes in the macroeconomic conditions of the euro area after the Maastricht Treaty came
into force and the Pact was signed. As described in section 2, the SGP was designed in the
1990s, when the sharp rise in government debt and high inflation during the 1980s was
regarded as the principal common challenge for European policy-makers. A major priority on
the policy agenda in those days was to prevent and reduce the debt build-up. This
macroeconomic situation as well as the prevailing macroeconomic policy view was codified
in the SGP in 1997.
Since 1997, new macroeconomic issues and thus new goals have emerged on the top of policy
priorities. Stagnation and lack of dynamism in the euro area has triggered an interest in
policies promoting growth, expansion and employment. This has given rise to proposals to
changes in the Pact to meet these new policy challenges. In addition, the fact that these issues
are not identical across the EU contributes to the plethora of proposals.
3. Lack of consensus about the role offiscal policy: The most important explanation behind
the multiplicity of proposals is the lack of consensus about the role of fiscal policy in general.
Economists are not in agreement about the proper goals, instruments and institutional
framework for fiscal policy-making. This state of affairs reflects a lack of a commonly
accepted theory for fiscal policy. After the demise of the Keynesian majority view on fiscal
policy of the 1950s and 1960s, several rival theories for stabilization policies have competed
in the market for ideas. In short, there is no ruling paradigm for fiscal policy-making and there
17
are no signs of a new consensus view emerging.
This point can be brought out by contrasting the state of affairs of fiscal policy with the case
of monetary policy. Today, there is a majority view in the economics profession on the role of
monetary policy, roughly consisting of the following building blocks. The goal of the modern
central banks is a low and stable rate of inflation, the instrument is changes in short-term
interest rates under the control of the central bank. The policy strategy is forward-looking and
rule-bound. The preferred institutional framework is a central bank with substantial
independence from the government and the ministry of finance but held accountable for its
actions to a democratic assembly. This philosophy has underlain the acceptance of inflation
17 In addition, as discussed below, there is considerable disagreement about the empirical evidence concerning
the effects of fiscal policy.
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