Reforming the Stability and Growth Pact

Abstract: A rules-based fiscal framework, such as the EU’s Stability and Growth Pact (SGP), can be an
important bulwark against short-sighted policies. Although policies have improved following
the SGP’s adoption, shortcomings remain. These, however, are rooted in the policies rather
than the rules, where few changes seem necessary. Specifically, the Excessive Deficit
Procedure needs a stronger focus on policies rather than outcomes, while staying
operationally simple and transparent. Furthermore, reforms are needed to foster timeconsistent national policies, budgetary transparency, and ownership of the Pact. Accordingly, parliaments should debate national Stability Programs and national fiscal councils should review these programs for parliaments.