Europe, the euro and the ECB: Monetary success, fiscal failure

This paper considers the debate over reform of the Stability and Growth Pact. While recent reforms are a sensible step in the direction of greater flexibility, ambiguities in their design all but eliminate the possibility that the pact will be effectively enforced. The key problem is that these steps in the direction of greater flexibility are not married with greater enforcement powers for the European Commission. This outcome reflects the limited extent of political integration in Europe, which limits the mechanisms available for holding the Commission accountable for its actions and therefore creates resistance to giving it strong enforcement power over public spending and taxation.