Maastricht Criteria versus Stability Pact

It is generally believed that fiscal consolidations should occur prior to a country's admission to the European Monetary Union (EMU). This paper argues that the fiscal Maastricht Criteria require badly timed, costly adjustments while not guaranteeing sustained fiscal restraint. An effective Stability Pact is not only necessary, but should replace the Maastricht Criteria altogether. These conclusions are based on simulations scrutinising the simultaneous effects of contractionary fiscal policies and of joining a monetary union. In a case study type analysis it is shown that there is a strong case for both policy changes to occur at the same time.