Abstract

Implementing fiscal disipline in public finance against interest groups and lobbies is a fundamental problem in democratic political systems. This paper gives a short overview of the ways to overcome the difficulties of democratic balanced budget policies given in the political economy literature, and analyzes the attempt to support these policies by international delegation and control made in the framework of the European Union and European Monetary Union. We discuss the basic idea and construction of the European Stability and Growth Pact and the reasons leading to the recent “reform” of the Pact. We conclude that the development of the Stabilty Pact is an exemplary case of failure of budgetary self-restriction procedures due to typical as well as special European aspects of their political economy background.