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from Part II - Fiscal policies
Published online by Cambridge University Press: 22 September 2009
Introduction
In the third stage of EMU, Member States shall avoid excessive general government deficits: this is a clear Treaty obligation. The European Council underlines the importance of safeguarding sound government finances as a means of strengthening the conditions for price stability and for strong sustainable growth conducive to employment creation. It is also necessary to ensure that national budgetary policies support stability-oriented monetary policies. Adherence to the objective of sound budgetary positions close to balance or in surplus will allow all Member States to deal with normal cyclical fluctuations while keeping the government deficit within the reference value of 3% of GDP.
(Resolution of the European Council on the Stability and Growth Pact, adopted at Amsterdam, June 1997).The purpose of this chapter is to examine the relations between monetary and fiscal policies in the context of the European Economic and Monetary Union (EMU). The quotation reported above makes three points which are relevant in this respect: national budgetary policies should (i) be inspired by the commitment to respect the medium-term budgetary objective of ‘close to balance or in surplus’; (ii) ‘support stability-oriented monetary policies’; and (iii) be able to ‘deal with normal cyclical fluctuations while keeping the government deficit within the reference value of 3% of GDP’. The Broad Economic Policy Guidelines (BEPG), which the European Council is required to formulate in terms of Article 99 of the Treaty of Maastricht, is the official document by means of which member states effectively coordinate their economic policies.
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