It Is Broken. Can It Be Fixed? A Look at the European Union's ...

Another concern is that the rules are difficult to enforce. Leaving enforcement to
ECOFIN is akin to having the fox guard the henhouse. This has definitely come to pass, as
evidenced by the fact that France and Germany have yet to be penalized, although they have
been threatened with penalties for exceeding the 3 percent deficit limit. Although this paper has
not gone into detail as to how a member state can be fined for exceeding the 3 percent deficit
limit, suffice it to say that a fine is not automatic, although that very well may be the public
perception. Nevertheless, the fact that France and Germany have not been penalized does suggest
that larger member states can ignore the reference values to no harm. The inference being that
this is a luxury that would not be afforded to smaller member states. Whether this is true or not is
certainly open to speculation. However, it has been cited as at least one of the many factors
which led the Netherlands to reject the Constitutional Treaty this past May.
In fairness, not everyone believes that the fault lies entirely, or even primarily with the
SGP.
There is plenty wrong with the SGP – the arbitrariness of the 3 percent rule, the
consequent pro-cyclical tendencies, and the insufficient room for maneuver it allows to
countries, such as Germany, where the one-size-fits all monetary policy is particularly
restrictive....But the objective of fiscal discipline which the SGP so clumsily and rigidly
pursues is not wrong….The main problem, from which the SGP controversy distracts
attention, is the European Central Bank’s excessive restrictive policy orientation (Martin,
2005, p. 7).
The ECB has long claimed that its only purpose is to pursue price stability, e.g. control inflation.
Nevertheless, Martin argues that in its pursuit of price stability, the ECB reacted too little, too
late when economic growth slowed in the early 2000s. The unfortunate result was that member
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