Between Growth and Stability

Between Growth and Stability

The Demise and Reform of the European Union’s Stability and Growth Pact

Edited by Lelia Simona Talani and Bernard Casey

Combining economic and political science perspectives, this timely and important book describes and analyses the circumstances and events leading to the demise and subsequent reform of the Stability and Growth Pact (SGP).

Chapter 3: A Dead Stability and Growth Pact and a Strong Euro: There Must be a Mistake!

Leila Simona Talani

Subjects: economics and finance, public finance


Leila Simona Talani INTRODUCTION In November 2003, the Stability and Growth Pact died at the hands of its father and mother, Germany and France.1 Yet, contrary to all expectations the Euro did not plunge. Indeed, it remained stronger than ever and the markets did not even think about speculating on the lack of credibility of a post-SGP EMU.2 Here a fundamental paradox arises: how can a currency strengthen in the midst of a serious crisis of fiscal rule? This counterintuitive phenomenon raises a set of fundamental questions concerning the European macroeconomic regime after the establishment of EMU. On what is the credibility of exchange rate commitments grounded? What kind of considerations induce financial markets to keep or withdraw confidence in a currency? Is fiscal stability in any way related to exchange rate credibility? In political science there is considerable disagreement among various interpretations of these events, ranging from intergovernmentalism to neoconstructivism.3 At the same time, economists continue to dominate the debate about both the credibility of exchange rates and fiscal coordination in a monetary union.4 This chapter seeks to explain the paradox within the framework of a revised, ‘embedded’ version of intergovernmentalism based on Andrew Moravcsik’s liberal intergovernmentalism (Moravcsik, 1993a). Intergovernmentalists would predict that, as applied to the working of the SGP, the interests of the most powerful member states prevail over those of smaller states in the ECOFIN decision-making process. Embedded intergovernmentalism traces the interests of the most powerful Euro-zone member states in the macroeconomic preferences of their...

You are not authenticated to view the full text of this chapter or article.

Elgaronline requires a subscription or purchase to access the full text of books or journals. Please login through your library system or with your personal username and password on the homepage.

Non-subscribers can freely search the site, view abstracts/ extracts and download selected front matter and introductory chapters for personal use.

Your library may not have purchased all subject areas. If you are authenticated and think you should have access to this title, please contact your librarian.

Further information