(In)efficiency of the Stability and Growth Pact - What Next?

Once the member states of EU entered the European Monetary Union they lost the possibility to use the monetary policy as a tool of macroeconomic stabilisation. This competence is transferred to European Central Bank who is therefore responsible for the monetary policy in EU. The only instrument left for the member countries is the fiscal policy. Since there is 27 fiscal policies held by national governments the strong fiscal coordination is needed to ensure the stability of the common currency. The Stability and Growth Pact was signed in 1997 as an instrument to enforce the fiscal responsibility in EU. States of the EMU have agreed to satisfy the 3% of GDP for the maximum annual public budgets deficit and 60% of GDP for the maximum annual public debt. Lot of hopes were put in this instrument but after more than 15 years of its application we can say that the SGP failed so did the insurance of the fiscal discipline in European level. This fact is fully reflected during the financial crisis, which subsequently became debt crisis. In this paper we will provide an overview of the literature treating the problematic of the SGP starting with the circumstances of its conception, continuing with its implementations since 1997 and impact of the debt crisis. The author will also outline the possible prospects for this instrument and the fiscal coordination in EU.