The New Palgrave Dictionary of Economics

2018 Edition
| Editors: Macmillan Publishers Ltd

Stability and Growth Pact

  • Thierry Warin
Reference work entry


The Stability and Growth Pact was designed in 1997 and implemented with the inception of the euro in 1999. An innovative tool in essence, it provides, first, a practical definition of the concept of fiscal sustainability by imposing a ceiling of three per cent and 60 per cent respectively on the budget deficit and public debt. Second, it offers guidelines for governments’ public finances. Third, it offers a way to coordinate national public finances to achieve an optimal fiscal–monetary policy mix within the Eurozone. Even before some countries breached the Pact, the economic literature argued about its rationales.


Bonds Budget deficits Business cycles Default risk premia Economic and Monetary Union (EMU) European Central Bank Eurozone Fiscal rules vs. discretion Fiscal–monetary policy mix Free-rider problem Medium Term budgetary Objective (EU) Monetization Moral hazard Optimal fiscal policy Political budget cycles Public debt Public finance Stability and Growth Pact Stabilization Treaty of Amsterdam (EU) Treaty of Maastricht (EU) Uncovered interest parity 

JEL Classifications

H3 H5 H6 E6 F15 
This is a preview of subscription content, log in to check access.


  1. Amador, J. 2000. Fiscal policy and budget deficit stability in a continuous time stochastic economy. Working Paper No. 384. Universidade Nova de Lisboa.Google Scholar
  2. Annet, A., Decressin, J. and Deppler, M. 2005. Reforming the stability and growth pact. Policy Discussion Paper 05/02, IMF.Google Scholar
  3. Ballabriga, F.C. and Martinez-Mongay, C. 2005. Sustainability of EU public finances. Economic Papers No. 225, European Commission.Google Scholar
  4. Beetsma, R. 2001. Does EMU need a stability pact? In The stability and growth pact – The architecture of fiscal policy in EMU, ed. A. Brunila, M. Buti, and D. Franco. Basingstoke: Palgrave.Google Scholar
  5. Beetsma, R., and A. Bovenberg. 1999. The interaction of fiscal and monetary policy in a monetary union: Balancing credibility and flexibility. In The economics of globalization: Policy perspectives from public economics, ed. A. Razin and E. Sadka. Cambridge: Cambridge University Press. 1999.Google Scholar
  6. Beetsma, R., and Debrun, X. 2005. Implementing the stability and growth pact: Enforcement and procedural flexibility. Working Paper No. 433, European Central Bank.Google Scholar
  7. Beetsma, R., and H. Uhlig. 1999. An analysis of the stability and growth pact. Economic Journal 109: 546–571.CrossRefGoogle Scholar
  8. Bernoth, K., von Hagen, J. and Schuknecht, L. 2004. Sovereign risk premia in the European government bond market. Working Paper No. 369, European Central Bank.Google Scholar
  9. Blanchard, O., and Giavazzi, F. 2004. Reforms that can be done: improving the SGP through a proper accounting of public investment. Discussion Paper No. 4220, CEPR.Google Scholar
  10. Bohn, H. 1995. The sustainability of budget deficits in a stochastic economy. Journal of Money, Credit and Banking 27: 257–271.CrossRefGoogle Scholar
  11. Branson, W. 1990. Intégration des marchés financiers et croissance durant la transition vers l’UEM. In Vers l’Union économique et monétaire européenne. Paris: La Documentation Française. Ministère de l’Economie.Google Scholar
  12. Bryson, J. 1994. Fiscal policy coordination and flexibility under European monetary union: Implications for macroeconomic stabilization. Journal of Policy Modeling 16: 541–557.CrossRefGoogle Scholar
  13. Buti, M., Eijffinger, S., and Franco, D. 2003. Revisiting the stability and growth pact: grand design or internal adjustment? Economic Papers No. 180, European Commission.Google Scholar
  14. Buti, M., and van den Noord, P. 2003. Discretionary fiscal policy and elections: The experience of the early years of EMU. Economics Department Working Paper No. 351, OECD.Google Scholar
  15. Buti, M., and van den Noord, P. 2004. Fiscal policy in EMU: Rules, discretion and political incentives. Economic Papers No. 206, European Commission.Google Scholar
  16. Coeure, B., and J. Pisani-Ferry. 2005. Fiscal policy in EMU: Towards a sustainability and growth pact. Oxford Review of Economic Policy 21: 598–617.CrossRefGoogle Scholar
  17. Cohen, D. 1990. Union monétaire, solvabilité des Etats et politiques budgétaires. In Vers l’Union économique et monétaire européenne. Paris: La Documentation Française. Ministère de l’Economie.Google Scholar
  18. Council of the European Union. 1997a. Resolution of the European council on the stability and growth pact. Amsterdam, 17 June. Official Journal C 236, 02/08/1997, 1–2.Google Scholar
  19. Council of the European Union. 1997b. Council regulation (EC) No 1466/97 of 7 July 1997 on the strengthening of the surveillance of budgetary positions and the surveillance and coordination of economic policies. Official Journal L 209, 02/08/ 1997, 1–5.Google Scholar
  20. Council of the European Union. 1997c. Council regulation (EC) No 1467/97 of 7 July 1997 on speeding up and clarifying the implementation of the excessive deficit procedure. Official Journal L 209, 02/08/1997, 6–11.Google Scholar
  21. Council of the European Union. 2005. Council report to the European council on improving the implementation of the stability and growth pact. 21 March. Online. Available at Accessed 30 Aug 2006.
  22. Cooper, R., and Kempf, H. 2000. Designing stabilisation policy in a monetary union. Working Paper No. 7607. Cambridge, MA: NBER.Google Scholar
  23. De Grauwe, P. 1990. La discipline budgétaire dans les unions monétaires. In Vers l’Union économique et monétaire européenne. Paris: La Documentation Française. Ministère de l’Economie.Google Scholar
  24. De Grauwe, P. 2003. Economics of Monetary Union, 5th ed. Oxford: Oxford University Press.Google Scholar
  25. De Haan, J., Berger, H., and Jansen, D.-J. 2003. The end of the stability and growth pact? Working Paper No. 1093, CESifo.Google Scholar
  26. Dixit, A. 2001. Games of monetary and fiscal interactions in the EMU. European Economic Review 45: 589–613.CrossRefGoogle Scholar
  27. Dixit, A., and L. Lambertini. 2001. Monetary–fiscal policy interactions and commitment versus discretion in a monetary union. European Economic Review 45: 977–987.CrossRefGoogle Scholar
  28. Eichengreen, B. 1990. Is Europe an optimal currency area? Discussion Paper No. 478, CEPR.Google Scholar
  29. Eichengreen, B., and C. Wyplosz. 1998. The stability pact: more than a minor nuisance. Economic Policy 26: 67–113.Google Scholar
  30. Fatas, A. 2005. Is there a case for sophisticated balanced-budget rules? Economics Department Working Papers No. 466, OECD.Google Scholar
  31. Issing, O. 2002. On macroeconomic policy co-ordination in EMU. Journal of Common Market Studies 40: 345–358.CrossRefGoogle Scholar
  32. Italianer, A., and M. Vanheukelen. 1993. Proposals for community stabilization mechanisms: Some historical applications. European Economy 5: 493–510.Google Scholar
  33. MacDougall, D. 1977. Report of the study group on the role of public finance in European integration. Brussels: Commission of the European Communities.Google Scholar
  34. Marinheiro, C. 2005. Has the stability and growth pact stabilized? Evidence from a panel of 12 European countries and some implications for the reform of the Pact. Working Paper No. 1411, CESifo.Google Scholar
  35. Mink, M., and de Haan, J. 2005. Has the stability and growth pact impeded political budget cycles in the European union? Working Paper No. 1532, CESifo.Google Scholar
  36. Mongelli, F. 1999. The effects of the European economic and monetary union (EMU) on fiscal sustainability. Open Economies Review 10: 31–61.CrossRefGoogle Scholar
  37. Nielsen, S. 1992. A note on the sustainability of primary budget deficits. Journal of Macroeconomics 14: 745–754.CrossRefGoogle Scholar
  38. Perotti, R., R. Strauch, and J. von Hagen. 1998. Sustainability of public finances. London: CEPR and ZEI.Google Scholar
  39. Pisani-Ferry, J. 2002. Fiscal discipline and policy coordination in the Eurozone: Assessment and proposals. In Budgetary policy in E(M)U: Design and challenges. The Hague: Ministerie van Financiën.Google Scholar
  40. Treaty establishing the European community. 2002. Official Journal C 325, 24 December.Google Scholar
  41. Uhlig, H. 2002. One money, but many fiscal policies in Europe: What are the consequences? Discussion Paper No. 3296. London: CEPR.Google Scholar
  42. von Hagen, J. 2003. Fiscal discipline and growth in Euroland: Experiences with the stability and growth pact. Wirtschaftspolitische Blätter 50: 163–183.Google Scholar
  43. Warin, T., and L. Wolff. 2005. Europe’s deficit free riders: A panel data analysis. European Political Economy Review 3: 5–17.Google Scholar
  44. Wyplosz, C. 2005. Fiscal policy: Institutions versus rules. National Institute Economic Review 191: 64–78.CrossRefGoogle Scholar

Copyright information

© Macmillan Publishers Ltd. 2018

Authors and Affiliations

  • Thierry Warin
    • 1
  1. 1.