EMU's second chance: enlargement and the reform of fiscal policy co-ordination

The rules for fiscal policy co-ordination in EMU have been seriously challenged since 2002. The original Stability and Growth Pact was not so much geared towards co-ordinating as towards disciplining members' fiscal policies. Since the Pact failed, another approach is required. The Commission's reform proposals are likely to provide for more co-ordination and mutually stabilizing insurance. The prospect of EMU enlargement suggests further changes in this direction. The stability of financial markets in the candidate countries must be the major concern for revising the rules, rather than containment of price adjustments and fiscal deficits.