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Debate: European Union Stability and Growth Pact
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Argument #1 | |
YesBy attempting to hold down spending in a recession, the Stability and Growth Pact is economic nonsense – increasing instability and impeding growth. |
NoPast history has shown that fiscal indiscipline is all too easily used by governments, for euro entry or electioneering. The Pact makes fiscal policy a matter of economics rather than political gain. |
Argument #2 | |
YesHaving lost control of monetary policy to the ECB, automatic fiscal stabilisers are the only way for countries to compensate when economies across the eurozone are out of step. Far more discretion is needed to allow for appropriate short-term adjustment, for the long term impact of too tight a policy is more damaging than short-run borrowing. |
NoDevolving monetary policy to depoliticised central banks has proven to be an economic success. In neither America nor Britain, despite heady predictions, is the economic cycle dead. Over time, the eurozone’s economies are bound to converge, meaning that monetary adjustment is sufficient. |
Argument #3 | |
YesAt the time of Maastricht, global fears were of excess inflation; the Pact is not designed for the current risk of deflation which requires fiscal stimulus rather than budgetary tightening. |
NoInflation will remain a long-term threat; in any case, too much rigour regarding inflation is due to the ECB’s asymmetrical monetary target (it aims to keep inflation below a certain level, rather than within a certain distance above or below a target, as the Bank of England does), rather than to the Pact. |
Argument #4 | |
YesBy fudging both euro entry criteria, and through weak enforcement of the Pact, the EU is damaging its economic reputation still more – it would be far better to boldly reform the Pact, which will only become more difficult as time goes on. |
NoThe Pact is a vital guarantor of dedication to the euro, and to the fiscal fundamentals which underlay it. Abandonment will endanger the position of the euro on world currency markets. |
Argument #5 | |
YesNational sovereignty is harmed by EU intervention into budgets; making it impossible for political parties to guarantee delivery on manifesto commitments on tax and spending, on the basis of which they were elected. |
NoNo political party should make rash promises to tax and spend beyond the constraints of sensible economics. The Pact allows for sudden economic shocks (e.g. an oil crisis), which still leaves substantial room for discretion. |
Argument #6 | |
YesThe status quo of semi-compliance is the worst case of all, sacrificing both discipline and dignity. This will only become worse when the EU enlarges, placing pressure on countries that need the room for manoeuvre which the Pact fails to provide. |
NoTo renegotiate the Pact would require a new treaty, not scheduled until 2005, and this would further confuse new entrants by moving the goalposts. Allowing members to vote on sanctions before their imposition means that flexibility is built into the system. |
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