This paper explores the parameters and operation of rule types as used in policy formation, arguing that hard law elements (where failure can lead to pecuniary sanction and recourse to the European Courts), and soft law (where there is reliance on peer pressure supplemented by various devices such as reporting and benchmarking) both have a role to play. It examines the role of sanctions – a key distinction between hard and soft law- and their influence on policy formation, how it is used as a symbol, the failure to trigger sanctions, the institutional and policy reasons for this, and the circumstances where sanctions can support coordination effectively, noting that a defensive response to policy coordination can be triggered if such coordination is seen as coercive and top-down. Reform of policy methods and institutions are constrained by the prospect of treaty reform – generally seen as best avoided in relation to EMU and the ECB in particular. This leaves any reform agenda focused on non-Treaty aspects of policy formation of which the Stability and Growth Pact is perhaps the most obvious. Recent reform proposals by the Commission have thus focused on a more flexible interpretation of the Stability and Growth Pact’s medium-term budgetary balance rule to take into account the size of public debt and the quality of public investment. While both of these reforms would help to restore consistency between the pact and the UK Treasury’s Fiscal Code for Stability and thus remove an important obstacle to UK membership of the euro area, they fail to adequately address the curren
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