The 3% GDP deficit threshold

["Esteban Perez" <eperez@xxxxxxxxxxxx>]

In the CJE Vol.22, No1. Jan 1998, p.104, Pasinetti wrote: "The Treaty (Maastricht) refers to an annexed protocol, where two very specific figures are stated: 3% for the public deficit/GDP ratio and 60% for the public debt/GDP ratio. Nobody has ever been able to give any plausible explanation of why these two figures were chosen...More difficult to explain is the choice of the 3% public defivit/GDP...Such a rigid stance  is so extraordinary as to lead one to think that any justification can only be found in the realm of symbolism...it surely should be an absolute necessary condition for fiscal and financial stability. Nobody has ever proved this. In fact it cannot be proved..."

Arestis, MacCauley and Sawyer stated, CJE, VOl 25, January 2001, p.118 (An Alternative Stability pact for the European Union): "This system of financial penalties for breaches of the budget deficit criterion implies that deflationary fiscal policies will continue and indeed intensify, as those countries which just meet the 3% requirement in conditions of cyclical upswing will have to tighten their fiscal stance to meet ther 3% requirement in times of cyclical downswing."

E. Perez