Sustainability of the fiscal criteria in stage III of the EMU

After a review of the theoretical justifications of the fiscal criteria and the different concepts of sustainability the fiscal position of the EU countries selected as members of the EMU is examined. Firstly, the assessment by the Commission and the EMI is critically reported. After identifying countries with successful consolidations and those without success conclusions about the implications for sustainability are drawn. It turns out that the effort towards fiscal consolidation is not yet over for a long time. Here, the Stability and Growth Pact draws the line. In particular in countries with presently very high debt to GDP ratios the next decade in the EMU could become a hard one. Secondly, macromodel simulations shall demonstrate how asymmetric shocks (one supply and one demand shock) may hamper the ambitions towards sustainability. Similarly, a single monetary policy can have detrimental effects when the business cycles are not synchronized in Euroland. This problem is touched upon with model simulations of a change of the common interest rate. (author's abstract)