The political stability and growth pact is dead: long live the economic stability and growth pact

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Series Title
Series Details Vol.44, No.5, December 2006, p969-990
Publication Date December 2006
ISSN 0021-9886
Content Type

Abstract:

Euro area countries suspended the excessive deficit procedure (EDP) of the Stability and Growth Pact in November 2003. Surprisingly perhaps, long-term European government bond-holders did not react: yields barely moved. Owing to its political nature, the EDP does not matter for investors. What matters is the implicit economic pact that investors have made with Member State governments.

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