Explaining Instability in the Stability and Growth Pact

Abstract

The Stability and Growth Pact clearly failed to prevent the euro crisis. We contend that the failure was due largely to the ability of the Member States to undermine the Pact’s operation. The European Commission served as a “watchdog” to monitor fiscal performance. The Member States themselves, however, collectively had the ability to change the content of the reports for individual states. We confirm the expectation that powerful Member States had the most success in undermining the role of the Commission. Perhaps more surprisingly, we find supporting evidence for our argument that governments with euroskeptic populations behind them were also more successful in weakening the Commission’s warnings. These results have broader theoretical implications concerning which mechanisms explain country-specific outcomes under a shared rule. Another contribution is the creation of a new data set of European Commission assessments of Member State economic programs and Council of Minister revisions.