Economy guys - what's with the EU stability pact?

[BeBMan]

They just changed it last weekend:

http://news.bbc.co.uk/2/hi/business/4367149.stm

So is the pact now officially a joke, or is there something positive in those reforms I don't understand?

[Colon™]

I doubt the pact is necessary, but Germany and France should cut their budget deficits regardless.

[DAVOUT]

The new pact seems to forget the limitation of the debt to 60% of the PIB. Any amount will be authorized provided the "adjusted deficit" does not exceed 3%. Of course the game should be replayed if and when the interest rates on the public debt will seriously increase.

[Maniac]

IIRC infrastructure and research & development spending is not counted towards the 3% deficit rule. From a Keynesian point of view this is good because infrastructure and R&D give new breath to the economy, making it easier to climb out of the deficit.

Not counting reunion, defence and aid costs to the deficit rule is of course more questionable...

[Spiffor]

A small step in the right direction. I'm especially fond of the idea that the Eastern countries won't be punished for making deep reforms in their pension system.

Generally speaking, I continue to think the pact is an absurd bondage on economic policies. But it will be a bit more possible to have leeway when designing economic policies, which should favor economic pragmaticism (a little bit).

[el freako]

Whilst this is good for more flexibility I hope it doesn't lead to a more lax policy in the long term.

We need to keep budget balances here in europe in check in order to be able to build up a good position to pay for the baby-boomers retirement.

We can't let our economy become as unbalanced as the US has, first because it's bad in the long-term and secondly because the world has enough trouble dealing with one seriously imbalanced continental-sized economy - it couldn't deal with two.

[pchang]

What you are seeing is what happens when short term national interests conflict with long term regional interests. Unless the EU truly becomes a single federal entity with sovereignty over all its members, this will continue to happen. Since Germany and France dominate the EU, they get what they want. If they had been against it (they were not that ones that needed this), it would not have happened.

[Maniac]

May I remind you the USA has no limit to deficit spending at all?

That aside, being allowed to perform deficit spending in low economic cycles is good for the longer term.

[pchang]

As long as it is not the first step on the slippery slope to no deficit limits at all (like in the US). I was not trying to imply the US system was better. However, there are some advantages to truly being a single political entity.

[DanS]

As far as I'm concerned, the stability pact was always a joke. But since the pact was agreed upon, it has to be followed for the sake of credibility. The Euro lost a lot of credibility with this change.