101 PROPOSALS TO REFORM THE STABILITY AND GROWTH
PACT. WHY SO MANY? A SURVEY
1. Introduction1
The purpose of the paper is to analyze, in a systematic way, the large number of proposals for
reforming the Stability and Growth Pact (the SGP) presented by professional academic and
non-academic economists in recent years. Our aim is first to identify different schools of
thought concerning the role of fiscal policy in the European Union and then to explain the
differences among them. Here we examine differences among the proposals across time,
countries and other dimensions using multivariate statistical analysis.
The background for our study is the recent crisis of the EU fiscal framework which led to the
suspension of the SGP in November 2003 and the adoption of a reformed SGP in March
2005. Growing political tensions concerning the SGP went along with a growing and
increasingly lively discussion about the main caveats of the EU budgetary framework and
potential solutions. The discussion was carried on within political and academic circles giving
rise to a veritable industry of SGP therapists who produced a wide range of proposals on how
to properly implement fiscal policy-making in the EMU.
When viewed from an adequate distance and disregarding the actual trigger of the crisis, the
discussion about the SGP can be read as the symptom of a more fundamental disagreement.
As regards the political debate, it could simply be taken to mirror conflicts of interest or
maybe dynamic policy inconsistencies which feature prominently in the political economy
literature. The disagreement among professional economists has a somewhat different
connotation. It clearly signals that there is no consensus about the proper goals and
instruments of fiscal policy, either in a domestic and or an international setting. Even the
empirical question about the effects of fiscal policy measures on domestic and international
demand is disputed. There is also a lack of agreement concerning the proper institutions for
framing fiscal policy. This state of affairs is in sharp contrast to the case of monetary policy,
1 We have received valuable comments from Roel Beetsma, Michael Bergman, Iain Begg, Martin Flodén,
Dermot Hodson, Jan in't Veld, Roman Kraussl, Ludger Schuknecht, Alessandro Turrini and Charles Wyplosz.
We thank seminar participants at the 2006 SNEE European Integration Conference, Molle and the Federal
Reserve Bank of San Francisco for suggestions. Research assistance by Paolo Biraschi is gratefully
acknowledged.
-4-