Chapter 16: Fiscal policy challenges of EU accession for the Baltics and Central Europe
George Kopits and István P. Székely1 INTRODUCTION Fiscal policy issues occupy centre stage in the accession to the European Union (EU). The main issues encompass: convergence to macro-ﬁscal reference values; ﬁscal costs of compliance with the regulatory framework; and limited access to net transfers from the EU budget. For each candidate country, these issues must be examined from the perspective of its current ﬁscal position. From the outset of the present EU enlargement process, new member states were envisaged to be approaching the criteria for participation in the economic and monetary union (EMU), pursuant to the Treaty of Maastricht.2 Speciﬁcally, at the time of accession, the applicants are expected to adopt the acquis communautaire and to adhere to relevant provisions of the Stability and Growth Pact (SGP).3 On the ﬁscal front, EMU prohibits direct central bank ﬁnancing of public sector deﬁcits and privileged access to ﬁnancial institutions, and requires approximation of the ﬁscal reference values (that is, limits) on the general government deﬁcit and gross debt, set at 3 per cent and 60 per cent of GDP, respectively. The SGP further prescribes a medium-term budgetary position of close to balance or surplus, and in the euro area, it imposes ﬁnancial penalties for non-compliance with the deﬁcit reference value. In addition, the accession countries are expected to meet uniform EUwide regulations, for the most part incorporated in the Single European Act (also called single-market regulations). Accordingly, the accession countries will be required to...
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