ABSTRACT
This chapter provides an overview on the debate on fiscal rules and focuses on the rules enshrined in the Maastricht Treaty. It describes the budgetary consolidation in Europe during the 1990s in terms of both size and composition in order to ascertain the success of the Maastricht convergence process. The chapter reviews the main features of the Stability and Growth Pact (SGP) by focusing on its preventive and dissuasive aspects. It analyses the economics of national fiscal policy under the Treaty and the SGP by means of a simple model of an optimising government subject to a deficit constraint. The chapter attempts to identify the key determinants of the Maastricht 'success' and assesses the strengths and weaknesses of the SGP. It also provides an assessment of the characteristics of European Monetary Unions fiscal rules against ideal rules standards. The Treaty requires a high degree of sustainable convergence for admitting a Member State to monetary union.
