Does Europe need a new Stability Pact?

Monetary union: Does Europe need a new stabilty pact - at Moneyweek.co.uk - the best of the week's international financial media.

What is the Stability and Growth Pact? It was part of the rules governing the creation of the euro. It forbids any member state from running a fiscal deficit of more than 3% of GDP in any one year. The aim was to stop countries borrowing too much. Usually, when countries borrow too much, inflation rises and they are penalised with higher interest rates and falling exchange rates. The danger was that, in a monetary union without rules, some countries would borrow too much, driving up rates across the eurozone.

Whose idea was the Pact?

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