In this timely special briefing, Chief Economist Leipold draws on decades of experience to explore the limits and best application of flexibility within the existing stability and growth pact. On the basis of a comprehensive analysis of the economic situation in Europe today, he proposes a three-point plan for developing pro-growth policies within the existing rules – and ensuring that the pact continues to play its important role in encouraging fiscal discipline and underpinning market confidence in the euro project.
Specifically, Chief Economist Leipold recommends that European leaders – at their upcoming 23-24 October European Council meeting – should:
- Apply the "exceptional circumstances" clause
- Enforce the "structural reforms" clause, and
- Expand the "investment" clause
He warns that, while the European Council has called for leaders to make the ''best use'' of existing leeway, ''very few voters or citizens have any idea what this 'greater flexibility within the rules' would entail,'' adding ''continuing to speak of 'flexibility' in vague and empty terms would be gravely irresponsible,'' given ongoing weakness in the European economy and worries about future euro-area economic performance. He adds that any effort to find greater flexibility should be built around four guiding principles: 1) Flexibility should promote a ''smart'' pact; 2) it should strengthen the economic underpinnings of the existing pact; 3) it needs simple rules, and 4) it is best administered by an independent, non-political, supranational enforcer, such as the European Commission.
Additional copies of Interpreting the Stability and Growth Pact: Making Best Use of the Existing Flexibility Within the Rules can be downloaded on the Lisbon Council website atwww.lisboncouncil.net.
About the Lisbon Council:
The Lisbon Council for Economic Competitiveness and Social Renewal asbl is a Brussels-based think tank and policy network. Established in 2003 in Belgium as a non-profit, non-partisan association, the group is dedicated to making a positive contribution through cutting-edge research and by engaging politicians and the public at large in a constructive exchange about the economic and social challenges of the 21st century.
About Alessandro Leipold:
Alessandro Leipold is chief economist of the Lisbon Council. He joined the Lisbon Council in 2010 after a distinguished career in economics, international finance, the European institutions and the International Monetary Fund, where he served as acting director of the IMF’s European Department until 2008. Follow Alessandro Leipold on twitter at @ALeipold.
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The Lisbon Council
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