Should we stick to the Stability and Growth Pact?

Type :

Term papers

Pages :

4 pages

Format :

.doc

Published date :

05/17/2009

Category :

Political science

Sub category :

European union

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Summary :

Introduction
European rule and its acceptance
The political application: Convergence criteria and the stability pact
A flexibility satisfying the opponents of the pact
Conclusion
Bibliography
Appendixes
1. Mundell-Fleming model with floating rates and perfect capital mobility

Abstract

The stability and growth pact is an essential element of the European Monetary Union and has been often criticized. One of the sharpest and most violent attacks came from the President of the European Commission, which is supposed to be the watchdog of the Treaties and laws, Romano Prodi who declared in an interview to Le Monde that "the stability pact is stupid, like all decisions which are rigid." This comment provoked a large debate, as many center-right MEPs and governments consider that the President of the Commission (as well as other politicians like Commissioner Pascal Lamy who said it was "medieval" or the Chancellor of the Exchequer Gordon Brown) should not criticize a rule that is so important for the EMU. The difficulties faced by many countries to meet the pact requirements (in terms of deficit and debt) legitimize the question whether states should stick to the pact or not. If we consider like Keynes that states should focus on growth and employment and use budget deficits to achieve full employment, then the "rigidity" of the pact is dangerous, but we should analyze the reasons why other politicians and economists advocate the respect of the pact.