We therefore suggest the view that the stability pact is a social norm, and that adherence to that norm responds in fact to the need to preserve reputation in front of the other members of the European Union. Using this extreme but not implausible hypothesis, we build a simple model similar in spirit to Akerlof’s (1980) seminal paper on social norms, and we show that reputational issues may cause the emergence of a stable and inferior equilibrium. We further show that, when with the enlargement a number of countries anxious to prove their ‘soundness’ will join the Union, the problems posed by the pact/social norm are likely to increase.
The International Monetary Fund (IMF) levies ‘surcharges’ or extra fees on member countries that either
- 09/12/2024
- Policy Brief
- Associated Authors: Marilou Uy