Stability and Growth Pact, inherent error of the stability and growth pact

As critics have seen from the outset and experience has since confirmed, there are two serious constructional faults in the Stability and Growth Pact adopted in 1996. – The competence of ascertainment (fact finding) regarding a violation of the agreed rules, namely three percent of GDP for the deficit and sixty percent for the debt, does not lie with an independent supranational authority such as the European Commission in Brussels. Rather, national governments report corresponding figures to Brussels. This has led to the release of falsified figures, as clearly happened in the case of Greece, which has already used them to trick its way into joining the European Monetary Union. – The Council of Ministers decides on budgetary transgressions; sinners thus sit in judgment on sinners. – Instead, the ECB believes that an automatic sanctioning mechanism should be introduced. As soon as a member exceeds the maximum limits set by the treaty, its voting rights in the Council of Ministers would be temporarily withdrawn (suspension of voting rights for the country that breaches budget limits) and it would be excluded from payments from EU coffers (adjournment of EU aid payments). – Whether the members of the euro zone will reach an agreement on these or similar sanctions seems doubtful at this point. – As a rule, a currency area coincides with the national territory. In the case of EMU, however, this is not the case. The SGP has therefore attempted to align the members’ national budgets with the requirements of monetary union. The basic idea is not to interfere with national freedom of decision in matters of fiscal policy. All that is to be done is to set limits on public finances that apply to all members. In the interest of all, it must be ensured that each member adheres to the binding agreement under international law, which is the Stability and Growth Pact and not merely a declaration of intent. – See bail-out, deficit hawk, Eurostat, default, policy default, shadow state, semester, European, solidarity, financial, Stability and Growth Pact, statistics authority, fiscal framework, asset levy, treaty compliance, monetary union 2nd – Cf. Monthly Report of the Deutsche Bundesbank of November 2010, p. 11 (warning against attempts at macroeconomic fine-tuning), ECB Monthly Report of September 2013, p. 113 et seq. (results of strengthening the Stability and Growth Pact; further improvements are needed), Deutsche Bundesbank Monthly Report of January 2014, p. 41 et seq. (basic principles; status and development in individual EMU countries).

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University Professor Dr. Gerhard Merk, Dipl.rer.pol., Dipl.rer.oec.
Professor Dr. Eckehard Krah, Dipl.rer.pol.
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