Theory, Evidence and Institutions
* INTRODUCTION The slowdown in actual and potential growth in the early years of EMU raises worries and doubts concerning the ﬁscal rules set in the Treaty of Maastricht and in the Stability and Growth Pact. It has been argued that these rules may represent an excessively binding constraint for appropriate counter-cyclical action and that the attempt to reach rapidly a budget position ‘close to balance or in surplus’ may worsen the slowdown. The risk that the rules may permanently reduce the public sector’s contribution to capital accumulation has also been pointed out. In this framework the adoption of a golden rule has been suggested. The rule would exclude investment spending from the computation of the ﬁscal parameters relevant to the Excessive Deﬁcits Procedure.117 In the opinion of those supporting the amendment, this would allow EU member states to loosen their ﬁscal stance while positively aﬀecting long run growth: debt ﬁnance would thus not harm future generations. Underlying the debate there are several issues. It is important to separate problems concerning the current economic situation from those concerning the design of the EMU’s ﬁscal constitution per se. The solution to the potential conﬂict between the objective of moving towards a close to balance position and the need to avoid a worsening of short-term economic prospects may not require changes to the rules set in the Treaty and in the Pact. Furthermore, the risk that a revision of the rules could harm the credibility of the commitment to ﬁscal...
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