European Business Issues
CORP 2502
Group Assignment:
Provide a critical assessment as to why, according to the Stability and Growth Pact, member countries of the EU should maintain deficits within 3% of their GDP.
By Michael Pearson P04285924
And
Kavon Bagheri P0427523x
10 February 2006
Adopted by the members of the European Union in 1997, the Stability and Growth Act is an agreement to facilitate and maintain the Economic and Monetary Union of the European Union by limiting budget deficits in countries which are part of the eurozone. A monetary union is where several countries have agreed to share a single currency among them, in the case of the EU, this is the Euro.
The pact was agreed upon to prevent over inflation from national governments passing to the European Central Bank (ECB), whose directive is to keep inflation under control. When the Stability and Growth Pact was drawn up, the leading countries that initially created the European Monetary Union(the single European currency-the Euro), such as Germany, were concerned that some countries would get round the rigorous monetary policy of the ECB by increasing government spending of public money within their own country which would create large budget deficit. (A budget deficit is when a government spends more money than in takes in through taxes. This deficit will eventually need to be paid by through increased taxation or seigniorage) The Stabilty and Growth Pact prevents this over spending by limiting each country to a budget deficit within 3% of their annual Gross Domestic Product (GDP is the total value of goods and services produced within a country in a year. It can be used as an indicator ...