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

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all the convergence criteria, including the 3 percent reference value, prior to becoming part of the euro-zone. The following points summarize some of the more important information from Table 1: • There has been a miniscule improvement in the deficit to GDP percentage for the euro-zone 12 for 2004 when compared to 2003, -2.7 percent compared to -2.8 percent. However, there are only three member states that are not in deficit – Finland, Ireland, and Belgium, compared to five in 2003, as Luxembourg and Spain went into deficit. This is the first time that Luxembourg has reported a deficit. • France and Germany, which account for more than half of EMU output, continue to have deficits significantly higher than 3 percent as they have for the last three years. France did show modest improvement when compared to 2003, however, Germany remained essentially unchanged. • The situation in Greece continues to worsen. The significant deterioration from the data reported for 2000 and prior when compared to 2001 and later call into question the accuracy of the earlier reported information. It is interesting to note that Greece did not qualify for admission to the euro-zone until 2000, a year after the other 11 member states qualified. Perhaps Greece fudged its data in order to qualify. Although, the United Kingdom is not a member of the euro-zone, it is important to note that its deficit to GDP percent exceeded the 3 percent reference value for both 2003 and 2004. This fact is quite interesting because the political rhetoric has long been that the British economy 8
is so strong that the British don’t need to and shouldn’t join EMU. Perhaps it is time to end that myth. Again, although not part of EMU, all of the recently admitted member states have deficits when compared to GDP for 2004 with the exception of Estonia which had a surplus of 1.8 percent. Malta -5.2 percent, Poland -4.8 percent, Hungary -4.5 percent, and Cyprus -4.2 percent had higher deficits than any of the euro-zone countries except for Greece. (Insert Table 2 about here) Table 2 presents the government debt as a percentage of GDP for the years 1998 through 2004. As indicated above, the convergence criteria called for government debt of not more than 60 percent of GDP. The following points summarize some of the more important information from Table 2: • Three countries – Belgium, Greece, and Italy had debt to GDP ratios considerable greater than 60 percent when they joined the euro-zone. The reason they were allowed to join EMU was because of the weasel words – approaching the value. Certainly, 105 to 120 percent is not really approaching 60 percent, however, what the table does not indicate, is that these percentages were, at the time, decreasing quite rapidly, again in order to be able to join EMU. This was particularly important for Belgium and Italy since they were founding members of the EU and it was unthinkable to not allow them to join EMU if they so desired. Both countries’ debt to GDP ratio has continued to decrease since the beginning of EMU, but obviously does not begin to approach the convergence criteria of 60 percent. 9
Page 1 and 2: Submission Form Author’s Name: Af
Page 3 and 4: • Budgetary discipline: a governm
Page 5 and 6: (9) If a Member State persists in f
Page 7: • Dissuasive elements which in th
Page 11 and 12: hand, its rules are not strict enou
Page 13 and 14: states’ revenue failed to grow at
Page 15 and 16: • Debt rules. The argument here i
Page 17 and 18: with a subsequent report to the Eur
Page 19 and 20: especially on the part of the large
Page 21 and 22: • Take better account in Council
Page 25 and 26: References Begg, I. and Schelkle, W
Page 27: Martin, A. (2005). Blame the ECB, N

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

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