The Demise and Reform of the European Union’s Stability and Growth Pact
Edited by Lelia Simona Talani and Bernard Casey
1 Leila Simona Talani When it was adopted by the European Council in Amsterdam in 1997 the Stability and Growth Pact (SGP)2 was celebrated as the guardian of the strength and credibility of the forthcoming Economic and Monetary Union (EMU), and as an additional support for German ﬁscal conservatism against the inﬂationary, free-riding proclivities of the ‘club-Med’. Yet, ironically, when in 2003 the SGP died at the hands of its mother and father, Germany and France,3 the Euro appeared to be stronger than ever. There was, moreover, little evidence that the markets questioned the credibility of a post-SGP EMU. The Maastricht Treaty protocols on EMU resolved the long-lasting controversy between the ‘monetarist’ and the ‘economist’ approaches to monetary union. The distinction between ‘monetarists’ and ‘economists’ emerged in the course of the discussions over the Werner Plan (1969) and referred to the strategy to be adopted during the transitional period leading up to monetary union. The ‘monetarists’ stressed the importance of achieving exchange rate stability through European institutional arrangements, while the ‘economists’ pointed out the necessity of policy coordination and, ultimately, convergence before agreeing on the adoption of a European ﬁxed exchange rate regime or a currency union.4 The Treaty established a rigid institutional framework with a clear-cut economic objective (that of pursuing price stability) and a three-stage timetable to achieve EMU (cf. Gros and Thygesen, 1998). At the same time, it devised a set of convergence requirements to which applicant member states had to conform before entering....