The fiscal policy framework of EMU and possible reforms of the Stability and Growth Pact have elicited much debate. The pact has been predicated on a conception of it as a device to discipline Member States. This gives rise to a paradox in which the credibility of policy-makers it is supposed to enhance is undermined. The article puts forward an alternative conception of policy co-ordination — collective insurance — designed to enhance the effectiveness of fiscal stabilization. The two approaches lead to different interpretations of how domestic interests affect policy-making. The insurance approach is shown to support various reform proposals by the Commission
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