A STABILITY PACT FOR PUBLIC DEBT

There is an urgent need to link the excessive deficit procedure with the issue of sustainability and hence the evolution of public debt. This note shows that there exists a simple way to introduce the evolution of public debt in the Stability Pact, which so far has focused exclusively on deficits. The link starts from the Maastricht criterion for participation in EMU concerning public debt and its reference value of 60% of GDP. The Maastricht criterion on public debt stipulates that if public debt exceeds 60% of GDP, it must be ‘sufficiently diminishing and approaching the reference value at a satisfactory pace’'. This note provides a numerical rule for evaluating whether public debt is indeed diminishing ‘at a satisfactory pace’. This numerical rule is in accordance with the reference values in the Treaty and could be used as the basis for an ‘excessive debt procedure’. * Director, Centre for European Policy Studies. This note is based on CEPS Working Document No. 97. The author wishes to thank to Leonor Coutinho for comments and suggestions.