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Intermediate Examination Paper from the year 2004 in the subject Economics - International Economic Relations, grade: A, University of Applied Sciences Essen (Institute for Economics and Management), language: English, abstract: In December 1991 at a summit in Maastricht the twelve nations, which constituted the European Community at that time, agreed on a treaty to transform the European Community into an European Union (EU). This Treaty was signed 1992 and came effective on November 1st of 1993 as an amendment to the treaty of Rome, the treaty the European Community was build on. Four years later the treaty of Amsterdam put the treaty of Maastricht into more concrete terms. The contracting parties agreed in Article B of this treaty that the Union will set itself (among others) the objective to promote economic and social progress through the establishment of an economicand monetary union (EMU), ultimately including a single currency. Under title V and VI of this treaty the countries also agreed to build up common, foreign- and security policies as well as to intensify their cooperation in fields of justice und home affairs. Title VII defines the ideas of a common economic and monetary policy. The treaty of Amsterdam was signed on October, 2nd 1997. Since all the Member States had to ratify the treaty by their respective legislative procedures, it did not come into effect until the end of May 1999. The European treaties, taken together, form the primary legislation and have characteristics of a constitution of the Community. The treaties provide the legal basis for all secondary legislation, i.e. regulations, directives and decisions of the institutions of the Community. 1 Peichl, Andreas (2003), p. 1-3. 2 Cowgill, Anthony and Andrew (2003b), p. 2.
Fiscal rule frameworks have evolved significantly in response to the global financial crisis. Many countries have reformed their fiscal rules or introduced new ones with a view to enhancing the credibility of fiscal policy and providing a medium-term anchor. Enforcement and monitoring mechanisms have also been upgraded. However, these innovations have made the systems of rules more complicated to operate, while compliance has not improved. The SDN takes stock of past experiences, reviews recent reforms, and presents new research on the effectiveness of rules. It also proposes guiding principles for future reforms to strike a better balance between simplicity, flexibility, and enforceability. Read the blog
"This paper begins by discussing the inherent conflict between the simultaneous existence of a single currency for the countries of the European Economic and Monetary Union (EMU) and the independent fiscal policies of those countries. The Stability and Growth Pact was an attempt to reconcile that conflict. I describe how EMU governments have chosen to ignore the Stability Pact's constraint on budget deficits and how they sought to undermine it by changing the rules themselves. The final part of the paper describes the actual resolution of the issue by the agreement reached at the end of March 2005 by the European Council. The new policy effectively abandons the Stability Pact and leaves the way open to much larger sustained deficits"--NBER website
The stability and growth pact imposes tight limits on government deficits and debts, but in the past year several large member states have breached the rules of the pact. The Commission proposed a series of reforms at the end of 2002. This report examines the reasons for the pact, and analyses the proposed reforms. The Committee advocates a flexible interpretation of the pact, and does not think the 3 per cent of GDP ceiling on deficits should be taken as an absolute limit. Any decision to implement sanctions should take account of the underlying economic situation. The Commission should have the power to issue early warnings directly to member states. Overall, the proposed reforms provide a good basis to achieve the necessary flexibility if they are interpreted as sound guidelines for member states to follow.
There is evidence that fiscal rules, in particular well-designed rules, are associated with lower sovereign spreads. However, the impact of noncompliance with fiscal rules on spreads has not been examined in the literature. This paper estimates the effect of the Excessive Deficit Procedure (EDP) on sovereign spreads of European Union member states. Based on a sample including the 28 European Union countries over the period 1999 to 2016, sovereign spreads of countries placed under an EDP are found to be on average higher compared to countries that are not under an EDP. The interpretation of this result is not straight-forward as different channels may be at play, in particular those related with the credibility and the design of the EU fiscal framework. The specification accounts for typical macroeconomic, fiscal, and financial determinants of sovereign spreads, the System Generalized Method of Moments estimator is used to control for endogeneity, and results are robust to a range of checks on variables and estimators.
The Stability and Growth Pact (SGP) encompasses the legislative text and political resolutions regulating fiscal policy and public finances in EMU. The contributions in this volume analyse the institutional, legal, theoretical and empirical aspects of the SGP, examine its development and evaluate its main implications. The authors include academic economists, who provide insightful analysis, and policy makers who have contributed to the shaping of the pact and have a direct responsibility for its implementation. This book is the definitive source of reference on the SGP for academics, policy makes and economists.