Between Growth and Stability The Demise and Reform of the European Union’s Stability and Growth Pact
The Demise and Reform of the European Union’s Stability and Growth Pact
Edited by Lelia Simona Talani and Bernard Casey
Chapter 5: Notes on the Reformed SGP: Creating and Implementing Effective Macroeconomic Frameworks
5. Notes on the reformed SGP: creating and implementing eﬀective macroeconomic frameworks Robert Woods1 1 INTRODUCTION This chapter sets out some general principles for an eﬀective macroeconomic framework and looks at the Stability and Growth Pact (SGP)2 in this context. It goes on to consider how the recent reforms3 are likely to aﬀect the functioning of the SGP. The ﬁnal section considers some of the future challenges in the implementation of the reformed SGP. Eﬀective macroeconomic policy frameworks help to achieve high and stable levels of economic growth and employment. Section 2 considers some general principles for eﬀective policy frameworks characterized in terms of credibility, ﬂexibility and legitimacy. Experience has pointed countries to frameworks with ‘constrained discretion’ with: clear longterm goals; a pre-commitment to sound institutional arrangements; and maximum transparency. Section 3 discusses how the SGP performed against the three criteria of credibility, ﬂexibility and legitimacy in the past and the extent to which the recent reforms have improved operation of the SGP. In particular, it highlights how key areas of the reforms are aimed at: ● ● ● improving credibility, for example by the increased focus on debt levels and long-term ﬁscal sustainability; increasing ﬂexibility by giving greater attention to cyclical factors and the quality of public spending, including public investment; and enhancing legitimacy from a more robust economic rationale and greater scope for judgement in the application of the SGP. Finally, Section 4 discusses some future challenges in implementing the pact including: the development of...
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