College of Liberal Arts & Social Sciences Theses and Dissertations

Graduation Date

8-2013

Document Type

Thesis

Department/Program Conferring Degree

International Studies

Keywords

eurozone, admission requirements for membership, phases of the business cycle, budget deficit, public debt

Abstract

In the last few years the main topics of discussion related to the European Economic and Monetary Union have focused on whether it will be able to survive the current crisis or whether or not the countries were ready to form a Monetary Union in the first place. There has also been mention of member countries having surpassed the public debt and budget deficit thresholds, 60 percent and 3 percent respectively, established by the Stability and Growth Pact. However, there has not been much focus on what the figures, established as limits in order to ensure fiscal stability, actually account for. In this paper the author analyzes the compliance of a group of member countries with the limits established in the Stability and Growth Pact on public debt and budget deficit. Based on statistical data available this author compares the economic performance of several member countries at different stages of the business cycle using 60 percent public debt and 3 percent budget deficit in relationship to GDP as the points of comparison. The establishment of a differentiated scale, which would respond to the stage of the business cycle a country might find itself in, is proposed. In the analysis one might observe that even among those countries considered to be very fiscally sound there have been those that at some point have, since their adoption of the euro, surpassed these limits. While the 3 and 60 percent look for fiscal stability they don't seem to account for economic slowdowns. The parameters should be reflective of a particular step in the business cycle, thus allowing for more flexibility in response actions.

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