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The Fiscal Compact and the Excessive Deficit Procedure: Relics of Bygone Times?

In: The Euro and the Crisis

Author

Listed:
  • Ansgar Belke

    (CEPS
    Institute for the Study of Labor (IZA))

Abstract

This paper takes a critical look at the Fiscal Compact as a key element of the future EU governance. It shows that the “Excessive Deficit Procedure (EDP)” is representing an Achilles heel of the fiscal pact. We put a finger in a wound that has been neglected up to now, probably because it has evaded daily politics analysis as a statistical-econometric issue: the “purposefully structured” data revisions in GDP and the government budget balance figures. The road to a sustainable “economic governance” of Europe can only work through fiscal federalism in conjunction with an incentive-compliant banking union. In that case, market-based interest rates provide a better incentive and sanction mechanism than the “Excessive Deficit Procedure” which is plagued by inherent manipulation leeway and political cycles but is decisive for the success of the Fiscal Compact. A further important omission of the Fiscal Compact is that it scarcely focuses on the relation between France’s lack of budget consolidation and the country’s shrinking international competitiveness—an economic relationship which is referred to based on the example of Greece.

Suggested Citation

  • Ansgar Belke, 2017. "The Fiscal Compact and the Excessive Deficit Procedure: Relics of Bygone Times?," Financial and Monetary Policy Studies, in: Nazaré da Costa Cabral & José Renato Gonçalves & Nuno Cunha Rodrigues (ed.), The Euro and the Crisis, pages 131-152, Springer.
    • Handle: RePEc:spr:fimchp:978-3-319-45710-9_10
    DOI: 10.1007/978-3-319-45710-9_10
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    Cited by:

    1. Jakub Rybacki, 2019. "Fiscal Deficit Forecasts by International Institutions: Evidence for a Double Standard?," KAE Working Papers 2019-044, Warsaw School of Economics, Collegium of Economic Analysis.

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