Working Paper: CEPR ID: DP668
Authors: Willem H. Buiter
Abstract: The paper reviews and evaluates in a non-technical manner the economic and political arguments for and against the two fiscal convergence criteria written into the Treaty of Maastricht and its Protocols. In order to qualify for full membership in Economic and Monetary Union (EMU), net general government borrowing may not exceed 3% of GDP and general government gross debt may not exceed 60% of GDP. The paper concludes that the adoption of these two universal fiscal reference values is arbitrary, without theoretical or practical foundation. It reflects the triumph of central bank (especially Bundesbank) fiscal-political dogma over economic reasoning and common sense. Attempts to meet these fiscal norms would result in unnecessary hardship for a number of countries and a deflationary fiscal stance for the EC as a whole.
Keywords: EMU; convergence; public debt and deficits; coordination; externalities; political economy
JEL Codes: E58; E61; E62; F15; F33; H63; H77; H87
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| adherence to the Maastricht fiscal convergence criteria (F36) | economic hardship (I32) |
| adherence to the Maastricht fiscal convergence criteria (F36) | contractionary fiscal bias (E62) |
| adherence to the Maastricht fiscal convergence criteria (F36) | deflationary fiscal stances (E62) |
| adherence to the Maastricht fiscal convergence criteria (F36) | harm to economic stability (F65) |
| Maastricht fiscal convergence criteria (E62) | worsening budgetary problems for Greece and Italy (H69) |