The 2005 Reform of the Stability and Growth Pact: Too Little, Too Late? Bruges European Economic Research (BEER) Papers 6/November 2006

This paper analyses the main critiques addressed by the literature and the policymakers to the 1997 Stability and Growth Pact. It further indicates to what extent the 2005 reform of the Pact meets those critics. It finally argues that the 2005 reform may be too little and arrive too late to restore the Pact credibility, ensure its enforceability and correctly set the derogations to the excessive deficit procedure on the nature of the shocks which cause the output gap rather than its size: a 3% of GDP limit on deficit spending may be a too binding constraint in front of a strongly negative demand shock, while it is irrationally large in front of a supply shock. Some empirical evidence is provided to identify in the last years strongly negative demand shocks from other shocks in the 25 EU Member States. Had this identifying method been adopted in November 2003, the European Commission and the Council would have both agreed to stop the excessive deficit procedure against Germany, but they would have both proceeded against France which apparently was not at the time hit by a strongly negative demand shock.

Economic Policy Coordination in the Economic and Monetary Union: From Maastricht via the SGP to the Fiscal Pact. CEPS Working Document No. 381, August 2013

This paper first takes a step backwards with an attempt to situate the recent adoption of the Treaty on Stability, Coordination and Governance in the Economic and Monetary Union in the context of discussions on the Stability and Growth Pact (SGP) and the ‘Maastricht criteria’, as fixed in the Maastricht Treaty for membership in the Economic and Monetary Union (EMU) in a longer perspective of the sharing of competences for macroeconomic policy-making within the EU. It then presents the main features of the new so-called ‘Fiscal Compact’ and its relationship to the SGP and draws some conclusions as regards the importance and relevance of this new step in the process of economic policy coordination. It concludes that the Treaty on Stability, Coordination and Governance in the Economic and Monetary Union does not seem to offer a definitive solution to the problem of finding the appropriate budgetary-monetary policy mix in EMU, which was already well identified in the Delors report in 1989 and regularly emphasised ever since and is now seriously aggravated due to the crisis in the eurozone. Furthermore, implementation of this Treaty may under certain circumstances contribute to an increase in the uncertainties as regards the distribution of the competences between the European Parliament and national parliaments and between the former and the Commission and the Council.

Flexibility clauses in the Stability and Growth Pact: No need for revision. CEPS Policy Brief No. 319, 24 July 2014

This Policy Brief offers an in-depth review of the Stability and Growth Pact (SGP) and looks at whether the margins of flexibility within existing rules are sufficient in the current climate of low growth, or whether there is a need to broaden them. The issue is especially relevant as the changing economic environment is raising fresh questions about whether the EU’s current common economic policies are able to manage dismal growth and low inflation. The fragile state of confidence in financial markets and the unresolved but inevitable questions of moral hazard linked to lax fiscal policies mean that no large-scale fiscal expansion to support the recovery of economic activity is feasible. The discussion may therefore only concern the scope within the SGP to accommodate an unexpected drop in economic activity and to provide room for the implementation of structural reforms. Here, we analyse the flexibility clauses of the Stability and Growth Pact under three headings; namely “exceptional circumstances”, “structural reforms and other relevant factors”, and the “investment clause”. Recommendation: Our main conclusion is that the SGP contains sufficient flexibility to accommodate an unexpected drop in economic activity and has the margins needed to finance structural reforms during the transition to the new regime. We therefore see no need to change the existing rules of the SGP. We believe that the ongoing debate about a fresh growth strategy for the eurozone and the European Union would greatly benefit from removing from the Council table ill-formulated and unnecessary demands for greater flexibility in the SGP.

Low key but not low impact: the results of the EU's 'transition' summit. EPC Post-Summit Analysis, 27 October 2014

The European Council Summit of 23-24 October 2014 may have been relatively low key, but many important decisions were made which could encourage historical changes. In this post-summit analysis, Janis A. Emmanouilidis examines the agreement reached on a new climate and energy policy framework for 2020-2030 which despite falling short of the European Commission’s original proposals, it nevertheless delivers a positive message to international community ahead of the global climate negotiations next year. He also highlights the significance of the request from euro-zone leaders for a new report on ‘better economic governance’ by December. More broadly, he uses this moment of transition in the EU’s leadership to analyse the current state and future direction of the Union, and underlines the need to provide a coherent and holistic response to the damage caused by the crisis and the challenges facing the Union, on the basis of an ambitious but pragmatic ‘package deal’ – a new pact between EU governments, and between the Union and its citizens – to heal the divisions of recent years and restore public faith in the benefits of EU membership.

New Pact for Europe: Towards a New Pact for Europe. Second report, October 2014

As the new EU leadership takes office, Europe faces a complex web of economic, political, social and global challenges which require new responses – above all, the need to restore the public’s faith and trust after the years of crisis which have prompted growing dissatisfaction with the Union, with many people now seeing it as part of the problem rather than part of the solution to those challenges. In 2012, a consortium of 11 European foundations initiated by the King Baudouin Foundation and Bertelsmann Stiftung, and supported by the European Policy Centre, decided to launch a project to promote a Europe-wide debate on the future of EU integration: an ambitious participatory initiative whose ultimate goal is to develop realistic reform proposals to shore up a Union hit by multiple storms in recent years, which have left many people questioning its capacity to respond effectively to those challenges. Two years later, we are proud to be able to present the outcome of this endeavour: the result of a joint reflection process involving the public, politicians, policy-makers, business leaders, trade unionists, EU experts, opinion-formers and other civil society representatives in many EU Member States. Obviously, not all the ideas and proposals generated by this process could be included in this report, but we hope that it faithfully reflects the feedback we received in all the debates. The discussions we have had led to the report that you now hold in your hands, which calls for a New Pact for Europe – between EU Member States and between the EU and its citizens – to enhance the Union’s capacity to deliver effective solutions to the many challenges facing Europe, and to do so in a way that benefits all EU countries and groups within society. This report is designed to feed into the on-going discussions about the EU’s future as the new leadership team takes charge, providing what we hope will be seen as a valuable contribution to the debate on how to introduce ambitious while at the same time workable and realistic reforms to make the EU more effective in responding to the challenges we face. We hope that it will be taken up for discussion by the new European Parliament, the new leadership of the European Commission, European Council and European External Action Service, and also by policy-makers in the Member States. And it does not by any means mark the end of the process. The report will be discussed again with policy-makers and stakeholders in a majority of Member States. Their feedback is important to us and will impact the future progress of the initiative.

The need for a New Pact. CHALLENGE EUROPE Issue 22 - Challenges and new beginnings: Priorities for the EU’s new leadership, September 2014.

During the last political cycle (2009-2014), the European Union (EU) went through the worst crisis of its history. In the months and years to come, the new EU leadership and Member States will have to take major decisions if Europeans want to sustainably overcome the crisis, prepare themselves for the manifold internal and external tests ahead, and provide the grounds for Europe to exploit more of its potential and meet the needs and expectations of citizens. The outcome of this venture is unclear considering the 'state of the Union' and the current mood in Brussels and national capitals. But one thing seems rather certain: to generate active support from citizens and elites, future developments at European and national level need to be driven by confidence and renewed ambition and not, as in the past years, by fear first – fear of a euro implosion; or of an involuntary exit from the common currency with unforeseeable consequences. In order to take strategic decisions about the Union's future, there is a need to identify and address the key challenge(s) and provide a coherent and holistic response on the grounds of an ambitious but at the same time pragmatic 'package deal', taking into account the diverging interests of Member States and their citizens. But what is the state of affairs, what is the key strategic challenge and how can the new EU leadership cope with it in the next political cycle (2014-2019)?

The future of the Franco-German tandem. OSW Commentary No. 83, 2012-07-11

Following the victories of François Hollande in the presidential election and the Socialist Party in the parliamentary election, the existing model of relations between Germany and France as symbolised by the Merkel-Sarkozy duo is undergoing a transformation. Along with the defeat for Sarkozy, who had fostered close cooperation with the German Chancellor, we are witnessing a change in the German-French modus operandi, which was based on making confidential agreements concerning the anti-crisis measures in the eurozone and then presenting ready-made solutions to other EU members (as in the case of the successive versions of the document currently known as the fiscal pact). However, a conflict in bilateral relations, which would mean a total breakdown of the Franco-German engine, is rather unlikely. In fact, François Hollande’s proposals have diminished the appearance of the two states’ exceptional compatibility, and have restored the specific relationship affected by the natural rivalry between two states, who because of their economies’ different orientation have divergent interests. Nevertheless, both sides are destined to reach a compromise, as neither can attain its goals in the face of the other’s opposition. In the long term, Hollande is likely to maintain a common front with Germany in fighting the crisis, while at the same time trying (with his allies from the south of the EU) to limit Berlin’s political and economic superiority.

Preventing another Euro Area Crisis: EU Economic Governance ‘Six Pack’ – a case of too little, too late? Paper from the Colloquium: The Politics and Economics of the Euro Crisis, Institute for European Studies, University of Malta, 2 December 2011

Summary: The ‘Six Pack’ forms part of the economic governance reforms which are being implemented in order to prevent a repeat of the current sovereign debt crisis in the Euro Area. This legislative package involves strengthening the Stability and Growth Pact, with stronger financial sanctions and more focus on debt; a new directive on national budgetary frameworks and a new framework to monitor and correct macroeconomic imbalances. Furthermore, the implementation of the ‘Six Pack’ also involves procedural reforms, in particular reverse majority voting, as well as more oversight by the European Parliament. Inter-institutional negotiations on the ‘Six Pack’ took over a year. In the meantime, the sovereign debt crisis had deepened and broadened, implying that the ‘Six Pack’ may have come ‘too late’. The ‘Six Pack’ has also proved to be ‘too little’ to address the crisis and by the time it entered into force, further measures and proposals to strengthen economic governance had to be made. Nevertheless, the ‘Six Pack’ comprises some positive developments. In particular, recognising that fiscal policy is a matter of national sovereignty, it sets a new approach which relies on institutional reforms at national level. As such, it constitutes a first, small step to improve economic governance in the Euro Area.