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Opinions on the Reform of the SGP by

By Gustav A. Horn and Imk Düsseldorf

Abstract

In March the European Council made a proposal on an improved implementation of the Stability and Growth Pact (SGP). The reason why the Council had to change existing rules is that the SGP simply did not work as expected. The most important advantage of the Councils decision to reform the SGP is that it implies a more flexible assessment of the 3 % threshold. However the reform does not correct a major constructional failure already part of the SGP. While there still are fairly strict and precise rules on what to do when at economically bad times the deficit becomes excessive, there are no restrictions for good times. Hence the asymmetry of SGP rules prevails. The only difference to the previous situation is that the mechanical interpretation of margins has been removed and replaced by more economic considerations. It would have been preferable if the reform would have been more systematic

Year: 2011
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