Abstract
Abstract The article analyses whether the European Monetary Union (EMU) requires the imposition of strict and binding constraints on national government budget policies. It shows that economic stability of the EMU could be endangered, mainly because of the insufficient credibility of the “no bail-out” rule. The consequences would be excessive budget deficits, upward pressure on interest rates and high inflation in Europe. Further on the paper examines the effectiveness of budgetary rules. In order to improve fiscal discipline sanctions are needed, if the participating countries fail to meet the ceilings.
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