Europe’s quest for fiscal discipline. Will the Stability and Growth Pact help Europe find the right balance between fiscal discipline and flexibility?

One of a series of articles in this issue of Finance and Development under the theme 'Europe's conundrum', which focus on the economic challenges facing the European Union following the accession of 10 new members on May 1, 2004.

The euro area's fiscal policy is underpinned by the Stability and Growth Pact, which requires countries to keep their fiscal deficits below 3 percent of GDP (except in the face of unusually large shocks). But repeated breaches of the pact by France and Germany in recent years have cast down on the pact's future. The authors assess the pact's performance and suggest a reform strategy that achieves a better balance between enforcing discipline and allowing flexibility.

• Primary Source

http://www.imf.org/external/pubs/ft/fandd/2004/06/index.htm http://www.imf.org/external/pubs/ft/fandd/2004/06/index.htm

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