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.

Review of the Economic Development in the Western Balkan States. OSW STUDIES No. 19, 2005-08-10

Foreword. Ten years after the end of the armed conflict, the Western Balkans1 are still being considered as the “land of the unsuccessful policies”. Enormous financial and technical assistance transferred by the International Community has not managed to meet the goals of integrating the region within itself as well as within the European markets. Explanation for this can be found in the consequences of the war and the remnants of the socialist state. The complexity of current institutional/ political arrangements combined with the limited willingness of the regional actors to introduce and implement much of the needed reforms have additionally contributed to the current state of affairs. The economy and politics in the region intertwine to an extent as probably in none of the other post-communist states. Therefore, the paper presents the recent economic performance of the Western Balkan countries in the light of their limited institutional development and lack of efficient regional cooperation. The paper discusses the importance of foreign direct investments’ inflow for the economic growth of the “latecomer” states and presents major drawbacks which limit the influx of the foreign capital to the region. It presents private sector activity and regional cooperation programmes. It discusses the role of the International Community with the main focus on the activities of the European Union. The EU is examined not only as the main aid donor but more importantly as a foreign trade partner. Furthermore, it analyses the impact of the presence of the International Community and their strategies towards the region with the special attention to the EU. Finally, it presents recommendations for the improvement of the economic performance in light of the enhanced political cooperation between the EU and the region.

Economic Development, Trade and Investment in Southern and Eastern Mediterranean Countries: An Agenda towards a Sustainable Transition. MEDPRO Policy Paper No. 4, February 2013

This policy paper spells out the policy recommendations that emerge from a series of detailed studies undertaken for MEDPRO Work Package 5 on “Economic development, trade and investment” and presents detailed recommendations for the SEMCs and the EU in the areas of macroeconomic management, trade, investment, private sector development and privatisation, and sectoral policies.

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.

The Relationship between Energy and Socio-Economic Development in the Southern and Eastern Mediterranean. MEDPRO Technical Report No. 27/February 2013

This report aims to identify, explain and detail the links and interactions in southern and eastern Mediterranean countries (SEMCs) between energy supply and demand and socio-economic development, as well as the potential role of energy supply and demand policies on both. Another related aim is to identify and analyse, in a quantitative and qualitative way, the changing role of energy (both demand and supply) in southern Mediterranean economies, focusing on its positive and negative impact on socio-economic development. This report investigates in particular: o The most important channels through which resource wealth can contribute to or hamper economic and social development in the analysed region; o Mechanisms and channels of relations between energy supply and demand policies and economic and social development. The burdens of energy subsidies and ‘oil syndrome’ are of particular relevance for the region. An integrated socio-economic development and energy policy scenario approach showing the potential benefits and synergies within countries and the region is developed in the final part of the report.