Should Europe Get Rid of the Stability and Growth Pact?

The paper addresses the question of the abolition of the Stability and Growth Pact. More and more authors and policymakers are arising the negative impacts of the European deficit rule on the countries and their ability to respond an asymmetric economic shock. Some others are asking for a redefinition of the Pact. If the focus is only fiscal and in light of the non-respect of the Pact by two of the biggest countries in Europe since its implementation, it could be demonstrated that the SGP needs at least a reexamination. To the converse, if we introduce into the analysis its impacts on the European structural policies, things are different and getting rid of the SGP could hinder the still up-to-date convergence prospective. Indeed, this paper proposed a theoretical analysis of the SGP that emphasizes a new feature of the SGP: a strong incentive to structural reforms. Classification: E61, E62, E63, F02, F42. 1 The author would like to thank the participants of the International Atlantic Economic Conference in Quebec City (10/16/2003-10/19/2003) for their helpful comments. The usual caveat applies.