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The new rules of the Stability and Growth Pact. Threats from heterogeneity and interdependence

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  • Roberto Tamborini

Abstract

This paper examines the new SGP rules that should govern fiscal policies of the EMU member countries by means of dynamic models of the debt/GDP ratio. The focus is on factors of heterogeneity and interdependence in the three key variables that may affect the debt/GDP evolution in a multi-country setup like a monetary union: the real growth rate, the inflation rate and the nominal interest rate on the sovereign debt stock. These factors are almost ignored in the SGP intellectual and institutional framework, but they can jeopardize the main goal of fostering convergence and keeping debt/GDP ratios equalized and stable over time. Even the return of growth, inflation and interest rates to their pre-crisis tendential values, a not so likely and imminent event, will probably be insufficient to create a favourable environment for smooth debt/GDP convergence across EMU countries.

Suggested Citation

  • Roberto Tamborini, 2011. "The new rules of the Stability and Growth Pact. Threats from heterogeneity and interdependence," Department of Economics Working Papers 1104, Department of Economics, University of Trento, Italia.
    • Handle: RePEc:trn:utwpde:1104
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    Cited by:

    1. Roberto Tamborini, 2014. "Interest-Rate Spread and Public-Debt Dynamics in a Two-Country Monetary-Union Portfolio Model," Open Economies Review, Springer, vol. 25(2), pages 243-261, April.
    2. S. Menguy, 2014. "Which is the optimal fiscal rule in a monetary union? Targeting the structural, the global budgetary deficit, or the public debt?," Cogent Economics & Finance, Taylor & Francis Journals, vol. 2(1), pages 1-21, December.
    3. Torój, Andrzej & Bednarek, Elżbieta & Bęza-Bojanowska, Joanna & Osińska, Joanna & Waćko, Katarzyna & Witkowski, Dariusz, 2012. "EMU: the (post-)crisis perspective. Literature survey and implications for the euro-candidates," MF Working Papers 12, Ministry of Finance in Poland, revised 06 Mar 2012.
    4. Roberto Tamborini, 2012. "Market opinions, fundamentals and the euro-sovereign debt crisis," Department of Economics Working Papers 1210, Department of Economics, University of Trento, Italia.

    More about this item

    Keywords

    Stability and Growth Pact; Public debt management;

    JEL classification:

    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook

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