optimal proposals’ or second-best thinking, reflecting the authors’ perception of what is
feasible in terms of reform of the Pact.
6. Summary
Our account of 101 policy proposals to reform the SGP demonstrates that there is a consensus
among the makers of the proposals in the sense that a large majority implicitly or explicitly
view fiscal rules as desirable. Without such rules, a deficit bias, i.e. a tendency by
governments to over-borrow and to build up unsustainable fiscal positions in the long run,
would emerge. In addition and more specifically related to the EMU, there is a broad
agreement that common supranational fiscal rules are necessary to address the risk of
externalities (spillovers) from domestic fiscal policies. A stability and growth pact to
coordinate fiscal policies is thus seen as instrumental. Only a small minority believe that the
tendency to over-borrow and/or the risk of spillovers can be adequately handled by market
forces, and even then, in some cases this position is not underpinned by genuine faith in the
disciplining force of the financial markets but rather by the conviction that any policy solution
would be subject to policy failure.
The broad consensus about the desirability of fiscal rules is dissolved and turned into wide
disagreement once the actual policy recommendations proposed to improve upon the
workings of the SGP are examined more closely. Economists suggest a wide range of
different solutions. We identify a number of factors explaining this multitude of proposals. In
short, they are not based on a common explicit theoretical foundation or model, they are not
based on a common empirical or econometric set of evidence, and they are not aimed at
reaching the same policy objective. We identify at least six different goals for fiscal policy as
well as a number of trade-offs between them. Often the same proposal aims at achieving more
than one goal at the same time - breaching Jan Tinbergen’s dictum of ‘one goal, one
instrument’. The methodologies adopted in the proposals range from narrative, through pure
theoretical exercises, to econometric estimates. We conclude that the major reason for the
multiplicity of reform proposals is the lack of common ground as to the role of fiscal policy,
although other factors also contribute to the wide differences among the 101 proposals.
Our results concerning fiscal policy-making in the euro area are in sharp contrast to the debate
about the common monetary policy for the euro area. There is considerable agreement across
the economics profession about the institutional structure of ECB, its independence, its
objective and the instruments it should use. True, the ECB has been criticized, but the critique
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