The Stability and Growth Pact from the Perspective of the New Member States

38 Pages Posted: 27 May 2004

See all articles by Gabor Orban

Gabor Orban

Magyar Nemzeti Bank

Gyorgy Szapary

Magyar Nemzeti Bank

Date Written: July 2004

Abstract

The purpose of this paper is to examine the fiscal characteristics of the new members in the light of the requirements of the SGP and the criticisms levelled against the Pact and to see in what ways their initial conditions differ from those faced by the current euro zone countries in the run-up to the adoption of the euro. Overall, because of the lower debt levels and greater yield convergence already achieved, the new members will be able to rely less on gains from yield convergence than the current euro zone members were able to do. EU accession will also have a negative net impact on the budgets of the new members in the early years of membership. We also look at the cyclical sensitivities of the budgets and find that in the new members the smoothing capacity of the automatic stabilizers might be weaker than in the current euro zone members. Beyond these general characteristics, we also emphasize that there are large differences in the starting fiscal positions of the new members. Some of the policy implications of our findings are discussed.

Keywords: EU enlargement, fiscal policy, fiscal rules, Stability and Growth Pact

JEL Classification: E61, H6, H87

Suggested Citation

Orban, Gabor and Szapary, Gyorgy, The Stability and Growth Pact from the Perspective of the New Member States (July 2004). Available at SSRN: https://ssrn.com/abstract=550682 or http://dx.doi.org/10.2139/ssrn.550682

Gabor Orban (Contact Author)

Magyar Nemzeti Bank ( email )

Szabadsag ter 8-9
Budapest, H-1850
Hungary

Gyorgy Szapary

Magyar Nemzeti Bank ( email )

Szabadsag ter 8-9
Budapest, H-1850
Hungary

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