Against the tide: Growth and Stability Pact – Stiffer discipline for Europe
The EU’s plans to tighten measures to prevent eurozone instability and discipline transgressors are admirable in theory. But implementation will be a tough task and is not in any case achievable until 2013.
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. It looks to prevent fiscal delinquency in advance, impose automatic sanctions against those states that transgress and monitor possible excessive imbalances that develop in the single currency union.
The problem is that there are economic and political obstacles to making it work effectively. And even if it is eventually agreed by member states, it won’t be implemented before 2013 and so cannot help deal with the present eurozone debt crisis.
What seems to be shaping up are three big changes. First, there will be an attempt to prevent fiscal indiscipline in advance.