The European Commission’s proposal to reform the Stability and Growth Pact (SGP) is old wine in new bottles. It fails to address the central problem that has contributed to the SGP’s failure from the onset – the lack of political will to implement the Pact’s provisions. Blatant conflicts of interest need to be tackled head on.
A long time ago elected politicians realised that they cannot be trusted with providing stable monetary policy. As a consequence, they have delegated the task to independent central banks. More than two decades of trying have provided ample evidence that, similar to the case of monetary policy, elected officials also cannot be entrusted with activating financial sanctions when rules are being broken. Give this role to an independent fiscal council. Fiscal policies are still determined by democratically elected governments. But the judgement on whether those policies conform with the agreed legal framework cannot be credibly performed by the same set of people that have broken the rules in the first place.