The new stability and growth pact and its implications for Italy, France and Germany

Abstract

This article deals with the Stability and Growth Pact (SGP), an international agreement which came into force first in 1997, aiming to ensure fiscal discipline and sustainable long-term growth. The fundamental purpose of the Pact is therefore to combine “Stability” and “Growth” in the EU and, in particular, the Eurozone. The research aims to answer a fundamental question: whether the Pact has succeeded in ensuring the achievement of the ambitious objectives imposed. The focus will be on three Member States: Italy, France and Germany. The first part of the article discusses the birth and the first two reforms of the Pact, analyzing the advantages and critical issues of the original version and the first reform. This part will help arguing that, although it may seem sufficiently articulated and adequate to ensure fiscal discipline and sustainable growth, the Pact presents various critical issues, and its provisions have not been sufficient to achieve the ambitious objectives entrusted to it. The second part aims to analyze the unsatisfactory adaptation of the States to the Pact at a general level and, consequently, to explain the reasons for the general lack of fiscal discipline within the EU and the Eurozone, with main focus on Italy, France and Germany. This part will also discuss the German Debt Brake Rule and its weaknesses. In addition, the article presents the critical issues of the second reform, the 2022 reform proposal and the new EU SGP from 2024, and the suggestions put forward by various economists regarding aspects that the Pact should consider more to achieve the objectives imposed on it in the future. This research concludes that the Pact needs further revision and intends to provide possible alternative ideas to ensure a future of stability and growth in the Eurozone.