Restoring Balance in Public Finance in Europe in the Light of the Fiscal Compact

Piotr Ptak


The aim of this article is to assess the extent to which Member States have achieved their medium-term budgetary objectives (MTOs) and the benchmark for government debt reduction in the light of the Fiscal Compact’s provisions. It also identifies the risks involved in this process. By carrying out a statistical analysis and a review of the subject literature, the author shows that less than half of Member States have managed to meet the requirements imposed by the Fiscal Compact. The analysis suggests that the impact of fiscal consolidation on economic growth is seen as one of the main reasons for this state of affairs. The author regards the provisions of the Fiscal Compact as a welcome step towards anchoring fiscal discipline in Europe. If it is implemented and strictly enforced, they should strengthen the existing fiscal governance framework and foster its credibility in the future, substantially reducing the risk of another sovereign debt crisis.


medium-term budgetary objective (MTO), debt-to-GDP ratio, fiscal consolidation, the Stability and Growth Pact, the Fiscal Compact

Full Text:



Angerer, J. and Japunčić, T. (2017) Implementation of the Stability and Growth Pact. Briefing. Brussels: European Parliament.

Bedgoni, J. and Meaney, K. (2017) EU Fiscal Rules and International Expenditure Rules. Dublin: Irish Government Economic and Evaluation Service.

Bohn, H. (2005) The Sustainability of Fiscal Policy in the United States. CESifo Working Paper No. 1446. Munich: CESifo.

Buchanan, J. M., Burton, J. and Wagner, R. E. (1978) The Consequences of Mr. Keynes. Hobart Paper No. 78. London: Institute of Economic Affairs.

Cossa, L. (1884) Początki nauki finansów [The beginnings of finance science]. Warszawa: E. Wende i Spółka.

Escolano, J. (2010) A Practical Guide to Public Debt Dynamics, Fiscal Sustainability, and Cyclical Adjustment of Budgetary Aggregates. Washington, DC: International Monetary Fund.

European Commission (2016a) Report on Public Finances in EMU. Institutional Paper 045, December. Luxembourg: Publications Office of the European Union.

European Commission (2016b) Vade Mecum on the Stability and Growth Pact. Institutional Paper 021, March. Luxembourg: Publications Office of the European Union.

European Commission (2017) European Economic Forecast – Winter 2017. Institutional Paper 048, February. Luxembourg: Publications Office of the European Union.

Hers, J. and Suyker, W. (2014) Structural Budget Balance. A Love at First Sight Turned Sour. CPB Policy Brief No. 7. The Hague: CPB Netherlands Burreau for Economic Policy Analysis.

Keynes, J. M. (1985) Ogólna teoria zatrudnienia, procentu i pieniądza [The theory of employment, interests and money]. Warszawa: PWN.

Kuusi, T. (2017) “Does the Structural Budget Balance Guide Fiscal Policy Pro-cyclically? Evidence from the Finnish Great Depression of the 1990s”. National Institute Economic Review 239 (1): R14–R31,

Mourre, G., Isbasoiu, G. M., Paternoster, D. and Salto, M. (2013) The Cyclically-adjusted Budget Balance Used in the EU Fiscal Framework: An Update. European Economy – Economic Papers No. 478. Brussels: European Commission.

Rosati D. K. (2013) “Konsolidacja fiskalna a kryzys zadłużenia w strefie euro” [Fiscal consolidation and debt crisis in euro area] in L. Oręziak, D. K. Rosati (eds) Kryzys finansów publicznych. Przyczyny, mechanizm, drogi wyjścia [The public finance crisis – causes, mechanism and the way out]. Warszawa: Oficyna Wydawnicza Uczelni Łazarskiego, pp. 11–37.

Rzońca, A. (2008) Paraliżujący deficit [Paralysing deficit]. Zeszyty FOR 1. Warszawa: Forum Obywatelskiego Rozwoju.

Skidelsky, R. (2012) Keynes. Powrót mistrza [Keynes. Return of the master]. Warszawa: Wydawnictwo Krytyki Politycznej.

Smith, A. (1954) Badania nad naturą i przyczynami bogactwa narodów [An inquiry into the nature and causes of the wealth of nations], vol. 2. Warszawa: Państwowe Wydawnictwo Naukowe.

Wernik, A. (2011) Finanse publiczne [Public finance]. Warszawa: PWE.