With the 2005 reform of the Stability and Growth Pact, a commitment was made to actively consolidate public finances in good times and to use unexpected extra revenues for deficit and debt reduction and not for additional expenditure. Against this background this study provides evidence of a lax...

Credibility of the revised fiscal rules will be crucial so that vulnerable countries can benefit from confidence effects. National ownership will be key in that respect and can be supported via a stronger role of independent national fiscal institutions.

Avoiding the mistakes of the past, when the good times were not used to build buffers, will be crucial to avoid countries again being forced to engage in a pro-cyclical fiscal tightening in the next downturn.