Discussion paper

DP18304 The enforcement dilemma of EU fiscal rules

Effective enforcement is an essential element of any fiscal rule. The EU’s Stability and Growth Pact (SGP) has been struggling with this truism since inception. In this paper we show that its effectiveness goes beyond the threat of fines. The notion that deficit-prone member states would adopt a more virtuous fiscal behaviour to avert sanctions under the SGP is overshadowed by the understanding that in the event of a major shock the virtuous countries will come to their rescue as the survival of the entire system is at stake. Unless the underlying risks of running afoul of the SGP are addressed, the effectiveness of fines is limited. Beyond majorities in the decision-making bodies, SGP enforcement crucially depends on the resilience of member states’ economies and the macro-conditionality deficit-prone countries face in the wake of major shocks in return for financial support.


Kirchsteiger, G and M Larch (2023), ‘DP18304 The enforcement dilemma of EU fiscal rules‘, CEPR Discussion Paper No. 18304. CEPR Press, Paris & London. https://cepr.org/publications/dp18304