The Stabilization and Growth Pact in the light of the new EU member-states

The paper sets out to examine the fiscal characteristics of new members in the light of the requirements of the SGP and criticisms levelled against the pact, and to see in what ways new members' initial conditions differ from those faced by current Euro-zone countries, in the run-up to adoption of the Euro. Overall, because of the lower debt levels and greater yield convergence already achieved, the new members will be able to rely less on gains from yield convergence than the current Euro-zone members were able to do. EU accession will also have a negative net impact on the budgets of new members in the early years of membership. The authors look at the cyclical sensitivities of the budgets and find that for new members, the smoothing capacity of the automatic stabilizers may be weaker than for current Euro-zone members. Also emphasized, apart from these general characteristics, are large differences in the starting fiscal positions of new members. Some policy implications of these findings are discussed.