Introduction:

The 2007–2011 crisis is first of all a banking and financial crisis, due to hazardous financial innovations, in a context of financial liberalisation. The crisis is not due to the rise in public debts and deficits. At the end of 2007, the public deficit at the OECD level amounted to 1.3 per cent of GDP only and was therefore below the level ensuring debt stability. Net public debt amounted to 39 per cent of GDP. The crisis led to a huge rise in government debts and deficits, first due to measures taken to support banks, later to the automatic fall in tax revenues, and finally to measures implemented to support output. According to financial markets, international institutions, and mainstream economists, it is now crucial to control public deficits and debts. The problems due to the instability and lack of control of the world economy generated by financial globalisation have been forgotten. Proposals aiming at imposing fiscal policy rules are back to the forefront. But there is no evidence that economically relevant rules can be set. This issue is especially acute in the euro area, where the Stability and Growth Pact (SGP) did not work, and where Member States (MS) are directly under financial market pressure. The ECB and the Northern countries, having agreed to help Southern countries, wish, as a counterpart, to impose a ‘New Fiscal Pact’, which risks paralysing fiscal policies and preventing economic stabilisation.

The chapter has three parts. Section 2 deals with the justifications and the specifications for fiscal policy rules, either in a classical or in a Keynesian framework. Section 3 provides an analysis of experiences with actual fiscal rules. Section 4 discusses the EU projects. Section 5 concludes.