Rationale of the Stability and Growth Pact Given the Maastricht Treaty Criteria - Essay Example

It should not be construed that flexibility does connote either desertion or abolishment of the core aims of the SGP. Flexibility connotes the required structural initiatives to be pursued immediately, whenever the business cycle offers a chance for the further development of economies of the member nations.

Wyplosz (2002) advanced the idea of independent fiscal councils (IFPCs) as an answer to the issue of fiscal co-ordination issue in EMU. Eishengren (2003) suggests fortifying the fiscal discipline by concentrating on the SGP to involve the quality of national fiscal institutions. Casella (1999) put forth a novel reform plan to supplement the procedures and the rules of the SGP with a market for a tradable deficit which acts as an efficient instrument for the implementation of fiscal issues in EMU. .(Fisher, Jonung & Larch 2006).

Mathieu and Sterdyniak (2003), Fitoussi (2002), and Bofinger (2003) have favored the choice in changing the present procedures and rules to consider the economic growth as the main mechanism to evaluate the success of SGP instead of a deficit. Fitoussi (2002) advocates that there should be a replacement of deficit rule by the debt rule and is to permit for the golden regulation of public finances, buttressing the significance of the public investment for attaining economic growth. Calmfors and Corsetti (2004) recommend enhancing the SGP's short-run suppleness on the deficit threshold by offering more significance to features of long-run sustainability.(Fisher, Jonung & Larch 2006).

Further, there is a laxity from Brussels, and due to failure to have strict adherence of deficit and debt within levels has made the rationale of SGP. For instance, laxity in administration allowed the entry of Belgium, Italy, and Greece who had debt-to-GDP well in excess of 60%. In the case of Greece, it is alleged that it had not only disrespected the SGP rules but also cooked up its records. In EMU, it is the liability of every regime to maintain its individual monetary house in order as there is no decentralization and the fiscal flexibility is missing, and hence the government has little maneuverability of fiscal policies, and this has paved to the debt crisis. (Patrick 2011:6).

To set the house in order, it is essential, the above reforms should be introduced in EMU immediately so that strict fiscal discipline is maintained to attain overall economic growth.