The Effectiveness of Fiscal Policy Coordination in the Economic and Monetary Union

This paper examines whether fiscal policy coordination in EMU is effective or not. To do so, the reasons for conducting fiscal policy coordination in EMU are set out first. This paper argues that fiscal policy coordination in EMU should aim at financial sustainability and flexibility in short term budgetary positions in order to counter economic ‘bad times’. It is found that the current institutional framework is insufficient to really influence EMU Member States. Therefore, an independent institution is proposed that has to deal with enforcing the guidelines and criteria established by the SGP. Furthermore, more flexibility is needed in the corrective part of the SGP.