Abstract
The paper investigates the rationale for, and the effectiveness of the fiscal criteria in the Maastricht treaty against the background of two questions: What are the incentives for an unsound fiscal policy in EMU, and what are the (potential) negative externalities if such a policy were to occur. The paper argues that EMU creates both incentives for a higher fiscal deficit while respecting solvency, and incentives for not rectifying a potentially unsustainable debt level once one is a member. Unsound fiscal policy could trigger important negative extermalities for the other member countries. The paper concludes that the current fiscal provisions of the Maastricht treaty are not sufficiently well defined and the envisaged sanctions not strong enough to enforce a disciplined fiscal stance. This leads to proposals of supplementary measures for surveillance and alternative sanctions. Staying within the framework of the Maastricht treaty, it is strongly suggested that both debt and deficit criteria should be strictly surveyed, but in view of their conceptual and operational deficiencies they should be supplemented by additional indicators. Based on this broader measurement concept, it is proposed to use semi-automatic and market-led sanctions to enforce a disciplined fiscal stance.
Article PDF
Similar content being viewed by others
Avoid common mistakes on your manuscript.
References
Alesina, A., De Broeck, M., Prati, A. and Tabellini, G. (1993) ‘Default Risk on Government Debt in OECD Countries’,Economic Policy 15, 428–463.
Baldwin, R.E. (1991) ‘On the Microeconomics of the European Monetary Union’,European Economy special edition No. 1: The Economics of EMU, 21–35.
Bayoumi, T. and Rose, A. (1993) ‘Domestic Savings and Intra-National Capital Flows’,European Economic Review 37, 1197–1202.
Bayoumi, T. (1994) ‘A Formal Model of Optimum Currency Areas’,IMF Staff Papers 41(4), 537–554.
Bayoumi, T. and Eichengreen, B. (1994) ‘Restraining Yourself: Fiscal Rules and Stabilization’,CEPR Discussion Paper No. 1029.
Bayoumi, T., Goldstein, M. and Woglom, G. (1995) ‘Do Credit Markets Discipline Sovereign Borrowers? Evidence from US States’,CEPR Discussion Paper No. 1088.
Bayoumi, T. and Thomas, A. (1995), ‘Relative Prices and Economic Adjustment in the United States and the European Union — A Real Story About EMU’,IMF Staff Papers 42(1), 108–113.
Bier, W. (1994) ‘The EMU Criteria — Government Deficit and Government Debt: A Statistical View’,EUROSTAT, mimeo.
Bini-Smaghi, L, Padoa-Schioppa, T. and Papadia, F. (1994) ‘The Transition to EMU in the Maastricht Treaty’,Princeton Essays in International Finance No. 194.
Bishop, G., Damrau, D. and Miller, M. (1989)1992 and Beyond: Market Discipline CAN Work in the EC Monetary Union, London: Salomon Brothers.
Blejer, M. and Cheasty, A. (eds.) (1993)How to Measure the Fiscal Deficit, Washington, D.C.: IMF.
Buiter, W. and Kletzer, K. (1991), ‘Reflections on the Fiscal Implications of a Common Currency’, in: Giovannini, A. and Mayer, C. (eds.),European Financial Integration, Cambridge: Cambridge University Press, pp. 221–244.
Buiter, W., Corsetti, G. and Roubini, N. (1993) ‘Excessive Deficits: Sense and Nonsense in the Treaty of Maastrict’,Economic Policy 16, 58–100.
Corsetti, G. and Roubini, N. (1992) ‘The Design of Optimal Fiscal Rules for Europe After 1992’,CEPR Discussion Paper No. 682.
De Grauwe, P. (1994)The Economics of Monetary Integration, 2nd ed., Oxfordet al., (Oxford University Press).
De Grauwe, P. (1995) ‘Alternative Strategies Towards Monetary Union’,European Economic Review 39, 483–489.
Delors Report (1989) Report on Economic and Monetary Union in the European Community, Commitee for the Study of Economic and Monetary Union.
Demmel, R., Hervé, Y. and Holzmann, R. (1995)Implications of the Maastricht Fiscal Criteria on National Fiscal Policy, University of Saarland, mimeo.
Eichengreen, B. and von Hagen, J. (1995) ‘Fiscal Restrictions and Monetary Union: Rationales, Repercussions, Reforms’,Forschungsbericht 9505, Europa-Institut der Universität des Saarlandes.
European Commission (1990) ‘One Market, One Money’,European Economy 44.
European Commission (1994) ‘Towards Greater Fiscal Discipline’,European Economy — Reports and Studies, No. 3.
European Commission (1995)Report on Convergence in the European Union in 1995, DG II, November.
European Monetary Institute (1995)Progress Towards Convergence, Frankfurt (EMI), November.
Feldstein, M. and Horioka, C. (1980) ‘Domestic Saving and International Capital Flows’,Economic Journal 90.
Fischer, S. (1993) ‘The Role of Macroeconomic Factors’,Journal of Monetary Economics 32, 485–512.
Ford, R. and Laxton, D. (1995) ‘World Public Debt and Real Interest Rates’,IMF Working Paper, WP/95/30, March.
Franco, D. (1995) ‘Pension Liabilities — Their Use and Misuse in the Assessment of Fiscal Policies, Commission of the European Union’,Economic Papers, No. 110, May.
Frenkel, J.A. and Razin, A. (1992)Fiscal Policies and the World Economy, 2nd edition, Cambridge, Mass. — London, England: MIT Press.
Frenkel, M. and Klein, M. (1992) ‘Eine theoretische Analyse zur Kontroverse um Unabhängigkeit versus Koordination der Fiskalpolitik in einer Währungsunion’,Jahrbuch für Sozialwissenschaft 43, 65–84.
Genser, B. and Haufler, A. (1994) ‘Tax Competition, Tax Coordination and Tax Harmonisation: The Effects of EMU’,Forschungsbericht 9505, Europa-Institut der Universität des Saarlandes.
Giorno, C., Richardson, P., Roseveare, D., and van den Noord, P. (1995) ‘Potential Output, Output Gaps and Structural Budget Balances’,OECD Economic StudiesNo. 24, 167–209.
Giovannini, A. and Spaventa, L. (1991) ‘Fiscal Rules in the European Monetary Union: A No-Entry Clause’,CEPR Discussion Paper No. 516.
Gros, D. (1995) ‘Excessive Deficits and Debts’,CEPS Working Document No. 97, October.
Gros, D. and Thygesen, N. (1993)European Monetary Integration, London: Bath Press.
Gros, D. and Vandille, G. (1995) ‘Seignorage and EMU: The Fiscal Implications of Price Stability and Financial Market Integration’,Journal of Common Market Studies 33(2), 175–196.
Hoeller, P. and Louppe, M.-O. (1994)OECD Economic Studies No. 23, Winter, 55–101.
Holzmann, R. (1995)European Economic Convergence and Budgetary Deficits, University of Saarland, mimeo.
Holzmann, R., Jank, H.-J. and Molitor, C. (1995)Exogener Nachfrageschockund makroökonomische Anpassung sreaktionen: Untersuchungen für das Saarland, Universität des Saarlandes, mimeo.
Holzmann, R., Thimann, C. and Petz, A. (1994) ‘Pressures to Adjust: Consequences for the OECD Countries from Reforms in Eastern Europe’,Empirica 21(2), 141–196.
Holzmann, R. und Zukowska-Gagelmann, K. (1996)Asymmetrische Auswirkungender Marktöffnung der mittel- und osteuropäischen Reformstaaten auf westeuropäische Marktwirtschaften, Universität des Saarlandes, (in preparation).
International Monetary Fund (1987)A Manual of Government Finance Statistics, Washington, D.C.: (IMF).
Klein, M. und Neumann, M.J.M. (1993) ‘Fiskalpolitische Regeln und Beitrittsbedingungen für die Europäische Währungsunion: Eine Analyse der Beschlüsse von Maastricht’, in: Duwendag, D. and Siebke, J. (ed.),Europa vor dem Beitritt in die Wirtschafts- und Währungsunion, Berlin, 195–226.
Martin, J.P. (1992) ‘Fiscal Adjustment in Ireland in the 1980s: A Comment’,The Economic and Social Review 23(3), 315–318.
Neumann, M.J.M. (1995)Monetary Union in the Absence of Political Union, Paper presented at the CEPR Conference on “EU Post 1996: Incumbents versus New Entrants”, Brussels, May 19–20.
Pintal, S., Delorme, F. and Vanheukelen, M. (1995)Budgetary Policy, Risk Premium and Fiscal Discipline: Empirical Evidence from Selected Canadian Provinces, mimeo.
Tanzi, V. and Fanizza, D. (1995) ‘Fiscal Deficits and Public Debt in Industrial Countries’,IMF Working Paper, WP/95/94, May.
Towe, C.M. (1991) ‘The Budgetary Control and Fiscal Impact of Government Contingent Liabilities’,IMF Staff Papers 38(1).
Van den Noord, P. and Herd, R. (1994) ‘Estimating Pension Liabilities: A Methodological Framework’,OECD Economic Studies No. 23, Winter, 131–166.
Verbon, H. and van Winden, F. (eds.) (1993)The Political Economy of Government Debt, Amsterdam: North Holland.
Author information
Authors and Affiliations
Rights and permissions
About this article
Cite this article
Holzmann, R., Hervé, Y. & Demmel, R. The maastricht fiscal criteria: Required but ineffective?. Empirica 23, 25–58 (1996). https://doi.org/10.1007/BF00925007
Issue Date:
DOI: https://doi.org/10.1007/BF00925007