Klaipėdos universitetas

The introduction of the Maastricht criteria was a crucial step in ensuring fiscal discipline and economic stability in the European Union. However, the crises of recent decades, including the Great Recession, the sovereign debt crisis, the Covid-19 pandemic, and the energy crisis, have revealed the limitations of these rules. Strict fiscal requirements have hindered countries’ responses to economic challenges, highlighting the need for a more flexible and adaptive fiscal policy to better withstand future economic shocks. The aim of this paper is to evaluate the effectiveness of the European Union’s fiscal rules over the 20-year period, analysing GDP growth differences between the EU and the Eurozone, as well as the fiscal performance of individual member states. It also seeks to

The Great Financial Crisis (GFC) of 2008 to 2010 increased the size of the public debt and decreased the fiscal space. The problem stems from the fact that fiscal resources are limited. Many OECD countries had used a substantial part of their limited fiscal space. Researchers suspected that higher levels of public debt in the future could slow down GDP growth. The first attempts to detect the tipping point at which GDP growth stalls or loses steam were made right after the GFC. However, the discussion was left open. The Covid-19 crisis required the further use of unprecedented amounts of fiscal stimulus resources to stabilise the economic situation. The objective of this paper is to establish whether new data of elevated public debt levels in relation to GDP confirms that higher levels of debt to GDP have an impact on future GDP growth and future financial stability. Debt and GDP data from OECD countries for the years 2000 to 2026 was used in order to carry out multilinear regression analysis, establishing the relationship between debt and future GDP growth. The results provide compelling evidence that the accumulation of higher debt levels slows down GDP growth, and require more fiscal resources in the future to stabilise the economic situation, compared with countries with lower accumulated public debt levels. Hence, higher inflation will require even more resources to service the debt.