Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/277470 
Authors: 
Year of Publication: 
2020
Citation: 
[Journal:] European Journal of Economics and Economic Policies: Intervention (EJEEP) [ISSN:] 2052-7772 [Volume:] 17 [Issue:] 2 [Year:] 2020 [Pages:] 111-126
Publisher: 
Edward Elgar Publishing, Cheltenham
Abstract: 
The origins of the reference values for budget deficits and public debt (3 and 60 per cent of GDP) in the euro area are explored. Both numbers came into the Maastricht Treaty by coincidence. Later attempts to legitimise them are traced and found unconvincing. In particular the debt cap is scrutinised, often considered as a precondition for debt sustainability. Since the first overhaul of the Stability and Growth Pact in 2005, reference values for structural deficits became the focus of fiscal policy, but derived from the 60 per cent debt cap. With the so-called Fiscal Compact from 2012, caps for structural deficits were added to the semi-primary law of the European Union. It is argued that the reference values for deficits and debt are not consistent. If the Domar equation is observed, the changing relationship between interest rates on public debt and output growth should be included in the fiscal policy framework. Therefore 'eternal' reference values for deficits and debt should be removed from the primary law by Treaty amendments.
Subjects: 
fiscal policy
Stability and Growth Pact
public debt
fiscal deficit
monetary union
debt sustainability
JEL: 
E43
E62
H62
H6
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by Logo
Document Type: 
Article

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