The Implementation of Economic Rules: From the Stability and Growth Pact to the European Semester

Country-specific recommendations (CSRs) were introduced by the stability and growth pact and offered guidance to countries in fiscal policies. Coordination was very limited and unsystematic in terms of policies and obligations. In the aftermath of the euro area financial crisis, the European Union reinforces the pre-existing policy cycle with the European Semester. Why do countries implement CSRs? Are there explanatory differences in their implementation before and after the introduction of the European Semester? We argue that the study of the entire history of the CSRs provides a unique chance to unravel opposite causal mechanisms. Employing an original dataset, we show that, in the first period, electoral proximity reduces implementation. We find also that, if a country is in (out of) the euro area, it is more (less) inclined to adhere to the CSRs as inflation increases. In the European Semester, instead, inflationary pressure and higher costs of enforcement increase implementation.