The Demise and Reform of the European Union’s Stability and Growth Pact
Edited by Lelia Simona Talani and Bernard Casey
Chapter 4: Bringing Domestic Pressures Back into the Budget: Germany’s Stability Pact and the New Incentive Structure in EMU
Benedicta Marzinotto INTRODUCTION1 It is generally recognized that the proposal and approval in 1997 of the Stability and Growth Pact (SGP), an institutional device aimed at guaranteeing ﬁscal discipline even after Economic and Monetary Union (EMU) had started its operation, were clear-cut German inputs into the EMU design process (Dyson and Featherstone, 1999; Stark, 2001). In this light, it is certainly surprising that Germany has been the ﬁrst large country to breach the 3 per cent deﬁcit target imposed by the pact and be subject to the ensuing excessive deﬁcit procedure in November 2002 (European Commission, 2002b).2 Yet the political leverage of the German representation in the ECOFIN Council was such that EU institutions decided to suspend the procedure in November 2003. The period that followed was characterized by the hectic eﬀort to address the obvious shortcomings of the SGP, and of its implementation and enforcement (Pisani-Ferry, 2002), so as to avoid ﬁnancial markets reacting with a vote of mistrust against the pact, which in fact never happened (see Chapter 3). The result of this long reﬂection was the approval of the Stability Pact reform in March 2005. The new version of the pact asserts that national ownership of ﬁscal policy is to be respected and that any evaluation of EMU countries’ stance with regard to the pact needs to take account of country-speciﬁc circumstances (Council of the European Union, 2005). Through this reform, two objectives have been achieved. On the one hand, the...
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