Institutional model evolution of fiscal rules in the EMU

Abstract

The regime evolution of fiscal policy in the EMU indicates an internal conflict between ensuring of the convergence and flexibility to adapt to asymmetric shocks. The convergence criteria, which precede the introduction of the Monetary Union is a formal basis for limiting the discretionary fiscal decisions, but they are not sufficient to create the institutional regulators of fiscal policy that is consistent with a single central bank operation. The transition from the Maastricht criteria to the Pact of Stability and Growth showed an attempt to combine the fiscal flexibility and responsibility under the relevant rules. However, this scheme proved to be vulnerable to the possibilities of opportunistic behavior and asymmetric penalty sanctions. Empirical analysis proved the lack of fiscal convergence in the integration area that manifested itself in the automatic stabilization of asymmetric fiscal policy during the phases of the business cycle in the context of the countries. The debt crisis in the EMU gave an impetus to the introduction of the system of harder fiscal rules, which, however, is not a return to the ideology of the Maastricht criteria.