Current developments in the design and management of fiscal rules in the European Union may have negative implications for new member states, says Fabrizio Coricelli
in a paper published by the Center for Social and Economic Research (CASE)
. Loosening of the Stability and Growth Pact (SGP) and a growing degree of arbitrariness in its implementation reduce incentives for fiscal adjustment in New Member States, adjustment that would be crucial during the transition to the Eurozone. High budget deficits may prove a serious obstacle in the process of catching up of New Member States to the income levels of EU-15 countries.