Strategie Lessons from the Maastricht Criteria

The fiscal criteria of the Maastricht Treaty have been heavily criticised in the economic analysis. Some of this criticism might be based on a too narrow economic approach that neglects the strategic function of the criteria. This study sheds light on this neglected dimension and proposes to understand the criteria in the context of bargaining theory as boundaries. According to bargaining theory a boundary is created in order to change bargaining equilibria. It is argued that this was probably the main purpose of the criteria: By making the EMU entry conditional on fiscal improvement it was possible to change fiscal policy equilibria. In a simple negotiation model of the relationship between the EU council and the median voter of an EU member country the conditions for the strategic effectiveness of this kind of conditionality are demonstrated. The empirical findings support the theoretical predictions by showing that the criteria were particularly effective in countries with a high rate of Euro acceptance. This leads to the expectation that consolidation will slow down in these countries in the years following EMU’s start. (JEL H87, F33, C78, D72)