Impact of Economic Crisis on Fiscal Imbalance Development in EU Countries

The Stability and Growth Pact is a tool level to maintain the fiscal discipline on EU level. The states of the EMU have agreed to satisfy the 3% of GDP requirement for the maximum annual public budget deficit. The pertinence of SGP was questioned since its adoption but the recent financial and economic crisis reveals how weak this tool really is. Based on the evolution of the public debt in member countries, we can say that the SGP has failed as a tool for fiscal discipline. Presented paper is based on previous research which assessed the impact of non-compliance with agreed rules on the level of public debt. Using the simple public debt dynamic model we separate the influence of compliance and non-compliance with the maximum level of deficit rule relative to GDP. Our previous research surprisingly showed that most of EU countries would suffer the raise of the debt level despite the respect of agreed rules in period 1995-2012. In our paper, we will analyze factors causing this situation and we will examine if it is possible to separate the influence of individual factors.