“The Stability Pact is stupid, like all decisions that are rigid […]” this declaration made by Romano Prodi in an interview for the French newspaper: Le Monde in October 2002 had given a nasty turn to the economical and political European scene. This quotation of the former President of the European Commission is totally in line with the concerns regarding the functioning of the Stability Pact.
Established by a Resolution of the Treaty of Amsterdam (signed on June 17th 1997), the Stability and Growth Pact appears as one of the most important elements of the European Economic and Monetary Union (EMU). Indeed, the Stability Pact was created as a set of rules, in order to ensure the stability and the balance of the Euro zone. For the past few years, the Pact that binds all member states to engage in the prompt implementation of the excessive deficit procedure, is the subject of many criticisms raised by economists, political observers and above all by European statesmen, such as French President Jacques Chirac and German Chancellor Gerhard Schroeder. Many statesmen and economists argue that the rigidity of the pact is the actual cause of the European monetary's weakness. By raising this criticism, they are supporting a revision of the Pact and even some of them argue for the elimination of the pact. With no doubt, these criticisms are the source of the Pact's lack of credibility and its legitimacy is now at risk. In order to discuss the future of the Stability Pact, Jean-Claude Juncker, Prime Minister of Luxembourg and President of the Euro group since 2002, had decided to organise two meetings in Brussels during March.
Considering the criticism against it, the future of the Stability and Growth Pact seems to be an uncertain one. In order to understand the reasons behind the criticism, a thorough analysis regarding the policies of the pact is necessary. This precise presentation of the Pact will provide an opportunity to re-examine the conditions and the reasons of its establishment. Moreover, this study regarding the policies of Pact will also be a platform to analyse the criticisms raised by statesmen and economists. Secondly, an examination of the relevance of Pact's alternatives proposed by political and economical observers will help to understand: if the Pact should be maintained, reviewed or eliminated?
Following a progressive analysis of the Stability Pact, our study will try to anticipate or at least examine the unstable future of the Pact.
[...] (2005) ‘Soft Law and Sanctions: Economic Policy Coordination and Reform of the Stability and Growth Pact'. - Pascal, S. (2002) ‘Shall we forget the Stability Pact', Le Québécois Libre, November, no Official texts - Treaty of Maastricht - Treaty of Amsterdam Website - www.lemonde.fr - http://www.euractiv.com/. - http://www.europa.eu.int/ - http://www.euractiv.com/ - http://www.lexpansion.com/ [1]Romano Prodi, Le Monde, October 18th 2002. [2]Maastricht convergence criterions, from the wed site: http://www.europa.eu.int/ - The inflation rate can not be more than higher than the average of the three lowest inflation rates in the EMS (European Monetary System) - The long-term interest rate is not more than higher than the average observed in the three low inflation countries. [...]
[...] Because of these different aspects, the Stability Pact is now accused of several problems. First of all, the Stability Pact is criticised for its rigidity, with its fixed rules in general and with the 3 percent rule in particular, the Pact appears as a “fiscal straight-jacket”[5]. Moreover, we can find the criticism made by both France and Germany concerning the fact that the Stability Pact does not pay attention to the adjustment of business circles and external factors which can provoke economic shocks. [...]
[...] Indeed, as Pascal Salin explains in his article titled: ‘Shall we forget the Stability Pact?'[7]: the necessity to remove the Pact is clear but at the same time, the European countries must be really vigilant in order to preserve the stability of the Euro zone. Thus, we need to analyze the propositions made by experts in order to replace the Pact or at least to improve it. Different propositions have been made, in order to redefine the 3 percent rule. [...]
[...] As mentioned earlier, the Stability and Growth Pact have been officially launched by an additional Resolution of the Treaty of Amsterdam in 1997. However, beyond this decision of the European Council of Amsterdam, the Stability Pact is the result of a long process started in 1995, under two proposals put forward by President of German Association of Cooperative Banks: Wolfgang Grueger and Theo Waigel, German Finance Minister at the time of the Pact's creation. The essence of the Pact was agreed at the Dublin Council in December 1996 and confirmed by the Treaty of Amsterdam. [...]
[...] This possibility of sanctions is given by the Stability Pact to the Council for Economic and Financial Affairs, commonly known as the ECOFIN. This Council, consisted of the Economy and Finance Ministers of the European member States and which meets once in a month, is provided with the power of sanction that aims to maintain a sort of discipline within the Euro zone. These sanctions are based on a particular mechanism, which is composed of different kinds of sanctions, including financial ones, such as fines. [...]
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