Stability and Growth Pact

Q: Why was the Stability and Growth Pact introduced, and what were the reasons for its failure? A: Since the beginning of monetary integration ideologies throughout European member states, there have been numerous movements which have contributed to the state of Economic Monetary Union the EU finds itself in today: with a single currency, a single market and competing with the American Dollar. One of the contributing movements which helped build towards greater monetary integration, was the Stability and Growth Pact (SGP). Growing from the Maastricht Treaty (1992), it was introduced mainly to insure that member states maintained budgetary discipline after the introduction of the single currency. It built upon criteria that was agreed in the Maastricht Treaty, and was agreed and formed in the Amsterdam Council meeting (1997). This essay will firstly address some of the former monetary integration ideologies, and give a brief history of the movements which lead to Economic Monetary Union (EMU) within member states. Then it will give a short indication and description of how the Stability and Growth Pact works. It will also discuss why it was introduced, and some of the reasons for its so called “failure”.
It is necessary to have a brief understanding of the history of ideologies of integration which lead to the formation of the introduction of the Stability and Growth Pact. One of the first philosophies of monetary integration came from Raymond Barre, the EC commissioner of 1969. It is referred to as the Barre Report (1969). In his report, Barre proposed greater co-ordination of economic policies and closer monetary integration within member states at the time. From this the Heads of States and governments decided to make economic and monetary union and official goal of European integration. The next important viewpoint of monetary integration is from Pierre Werner, the Luxembourg Prime Minister of 1970. It is officially known as the Werner Report (1970).