This paper evaluates the Stability and Growth Pact. After examining the rules
in place and the experience so far, the Pact is analysed from a political
economy perspective, focusing on the choice for so-called soft law and drawing
inferences from characteristics of successful fiscal rules at the state level
in the United States. It is also examined whether big and small countries are
likely to adhere to fiscal policy rules in place. Furthermore, the impact of
the business cycle on fiscal policy outcomes is analysed. Finally, the
proposals of the European Commission to strengthen the Pact are discussed.