Pasinetti and the EU Fiscal Governance Framework: A Debate That Will Not Go Away

Abstract

Luigi Pasinetti voiced his objections to the Stability and Growth Pact (SGP) at its very inception, in the late 1990s. The SGP has by now been in existence for almost one-quarter of a century. Its historical trajectory has proven its critics right, while its repeated revisions over time have increased its complexity and ineffectiveness to the point where the European Commission embarked on a process of overhaul, ending in a new EU fiscal governance framework. In the present article, we argue that Pasinetti’s objections remain valid today, twenty-five years after he exposed them in a series of articles. The new version of the Stability and Growth Pact remains focused on debt reduction, ignores the role of money and of finance and keeps fiscal policy apart from the rest of the economy. The chances that it will succeed where its previous versions failed appear slim.