Swiss Journal of Economics and Statistics

, Volume 149, Issue 2, pp 205–217 | Cite as

How to enforce fiscal discipline in EMU: A proposal

  • Jakob de Haan
  • Niels Gilbert
  • Jeroen Hessel
  • Silvie Verkaart
Open Access


Based on Inman’s (1996) classification of successful fiscal policy rules, we argue that the Stability and Growth Pact suffers from two serious weaknesses: a politicized decision-making process and lack of effective instruments to enforce that Member States adjust their fiscal policies if needed. Although recent changes in the European Union’s governance of national fiscal policy are considered to be an improvement, we argue that they do not address these shortcomings sufficiently. More independent enforcement is needed, and our preferred long-term solution would be to delegate the enforcement of European budgetary rules to a fully independent Budgetary Authority. Once the enforcement by this authority is well established and government debt-to-GDP ratios have declined towards 60%, fiscal discipline could be strengthened even further by introducing well-designed Eurobonds as the capstone of EMU. We propose centrally issued Eurobonds for the full public debt under the condition that Member States will no longer be allowed to independently raise funds in the money or capital markets. The independent Budgetary Authority only distributes funds to Member States if they have sustainable fiscal policies as defined under the SGP or if they properly implement a strictly monitored adjustment program.




debt debt brake fiscal rules European Economic Monetary Union 


  1. Alesina, Alberto, and Guido Tabellini (2007), “Bureaucrats or Politicians? Part I: A Single Policy Task”, American Economic Review, 97(1), pp. 169–179.CrossRefGoogle Scholar
  2. Amtenbrink, Fabian, and Jakob de Haan (2006), “Reforming the Stability and Growth Pact”, European Law Review, 31(3), pp. 402–413.Google Scholar
  3. Benetrix, Augustín S., and Philip R. Lane (2013), “Fiscal Cyclicality and EMU”, Journal of International Money and Finance, 34(1), pp. 164–176.CrossRefGoogle Scholar
  4. Blinder, Alan S. (1997), “Is Government too Political?”, Foreign Affairs, 76, pp. 115–126.CrossRefGoogle Scholar
  5. Buti, Marco, Sylvester C. W. Eijffinger, and Daniele Franco (2003), “Revisiting the Stability and Growth Pact: Grand Design or Internal Adjustment?”, CEPR Discussion Paper 3692.Google Scholar
  6. Fatás, Antonio, and Ilian Mihov (2002), “The Case for Restricting Fiscal Policy Discretion”, CEPR Discussion Paper 3277.Google Scholar
  7. European Central Bank (2012), “A Fiscal Compact for a Stronger Economic and Monetary Union”, ECB Monthly Bulletin, May 2012, pp. 79–94.Google Scholar
  8. de Haan, Jakob, Helge Berger, and David-Jan Jansen (2004), “Why has the Stability and Growth Pact Failed?”, International Finance, 7(2), pp. 235–260.CrossRefGoogle Scholar
  9. de Haan, Jakob, Niels D. Gilbert, Jeroen P. C. Hessel, and Silvie A. M. Verkaart (2012), “Beyond the Fiscal Compact: How Well-Designed Eurobonds May Discipline Governments”, Zeitschrift für Staats- und Europawissenschaften (ZSE) (Journal for comparative Government and European policy), 3, pp. 323–337.CrossRefGoogle Scholar
  10. Inman, Robert P. (1996), “Do Balanced Budget Rules Work? U. S. Experience and Possible Lessons for the EMU”, NBER Working Paper 5838.Google Scholar
  11. Lane, Philip R. (2010), “Some Lessons for Fiscal Policy from the Financial Crisis”, IIIS Discussion Paper 334.Google Scholar
  12. Papademos, Lucas D. (2003), “The Stability and Growth Pact: An Asset Rather than a Liability”, CESifo Forum, 4 (2), pp. 73–77.Google Scholar
  13. Von Hagen, Jürgen, and Ian J. Harden (1995), “Budget Processes and Commitment to Fiscal Discipline”, European Economic Review, 39, pp. 771–779.CrossRefGoogle Scholar
  14. Wyplosz, C. (2012), “Fiscal Rules: Theoretical Issues and Historical Experiences”, NBER Working Paper 17884.Google Scholar

Copyright information

© Swiss Society of Economics and Statistics 2013

Authors and Affiliations

  • Jakob de Haan
    • 1
  • Niels Gilbert
  • Jeroen Hessel
  • Silvie Verkaart
  1. 1.De Nederlandsche BankAmsterdamThe Netherlands

Personalised recommendations