DP1505 Four Essays and a Funeral: Budgetary Arithmetic under the Maastricht Treaty

Author(s): Andrew Hughes Hallett, Peter McAdam
Publication Date: December 1996
Keyword(s): Convergence Criteria, Credibility, Debt and Deficit Ratios
JEL(s): E63, F15, H63
Programme Areas: International Macroeconomics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=1505

This paper analyses four popular themes in the debate about the transition to monetary union: (a) fiscal discipline creating gains in credibility; (b) there being perceptible risk of a bail out for the highly indebted countries; (c) budgets being successfully cut to the required 3% limit in conditions of low growth and low inflation; and (d) the convergence criteria actually being mutually consistent. The usual accounting identities show the first two effects are likely to be small or non-existent, whereas the second two are unlikely to be satisfied.