The drafters of the euro area’s Stability and Growth Pact provided for the possibility that “exceptional circumstances” could allow member states’ budget deficits to exceed the 3% limit. But the definition they gave has shown itself to be too restrictive: none of the countries facing deficit problems while suffering from poor growth has been able to use this justification. The clause therefore appears as virtual and the European Commission is proposing to change it. What could the new definition of exceptional circumstances be? Should a rate of growth be used, as is presently the case, but at what level? Or should a “threshold of exceptionality” be considered? Should an absolute standard be defined for all member states or should a standard be adapted to the potential growth levels of different countries? The various possibilities are examined here: they would have led to exceptional circumstances being invoked for between 20% and 50% of the excessive deficit cases which arose from 1997 to 2003.
stability and growth pact; tax and budget policy; european integration
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