Stability and Growth Pact: Benign or Malign Neglect?

Right from its inception the EU Stability and Growth Pact (SGP) has been much maligned. Proposals to either scrap or reform the Pact have been largely ignored. Political tensions, culminating in the decision by the Council of Finance Ministers to set aside the European Commission-s proposal on sanctions for France and Germany, have re-ignited the controversy. The wilful neglect, either malign or benign, of the SGP rules places greater onus on reforming budgetary targets to provide the correct balance between fiscal discipline and stabilisation in the expanding European Union (EU). Modifying whilst retaining the existing SGP may be the most politically feasible alternative, even if not the most economically desirable. Modifications should give explicit acknowledgement of countries' debt levels and could focus upon net public investment to allow economies make use of differential growth potentials in deciding upon the sustainable trajectory for their public finances.