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This paper explores the functioning of the EMU Stability and Growth Pact from 1999 to 2005, year of its first explicit reform. The causes and the principal axes of that reform are analysed, as well as the main arguments for defending or critizising it.
As to the Pact’s prior functioning, for almost all small and medium Euro area states this is a success story and the reform appears apt to facilitate the Pact’s future implementation. As to the larger Member States, the Pact experience has been a history of non-observance which the Pact’s reform appears only to condone and abet. This contradictory experience leads to a negative judgement on the functioning of the SGP as a whole. But recognising the success of the compliers’ group, and not only the failure of the non-compliers, justifies the Pact’s basic logic, as against certain commonly heard indictments. It permits to sharpen the analysis. These points will be explored later in this paper.
As to the reform, it does not appear to correct the most evident drawbacks of the Pact and of its application. A negative assessment appears especially justified in a static perspective and taking the reform as it is, tel-quel. But a more positive assessment appears possible, if one views the reform in a more dynamic perspective, implementing it in a forward-looking manner, by operationalising the new concepts of the reform (the “relevant factors”), and by further improving the context: first by developing Member states’ capacities to better apply the Pact, and eventually also counting on a stronger influence of financial market actors, on public borrowing.
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