The European Commission has come up with measures to stiffen the Growth and Stability Pact. Originally designed to ensure that member states in the single currency zone would not allow fiscal and monetary imbalances that could lead to crises, GSP1 failed. Many member states never kept to the EC’s fiscal targets and GSP1 was unable to discipline the delinquents. Then the Greek debt crisis exploded, threatening to break up the euro area itself.
As the price of bailing out Greece and preparing funding for other possible sovereign debt defaulters in the EU, Germany and other more fiscally stable states have demanded a much stiffer fiscal pact.
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