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Why does the EU Stability and Growth Pact sets the specific value of 3% of GDP for maximum budget deficit. Where does the number come from? Why specifically 3% instead of 2.5% or 3.5%?
Thank you
regards
Thank you
regards
Actually, you and Russ are thinking about this slightly wrong. If you match debt growth to GDP growth, your debt levels will rise, if they are less then 100% of GDP. If they are over 100% they will actually shrink. The obvious way of thinking about this is take a country with no debt and a 3% deficit for the year and 3% inflation, obviously their debt levels would have to rise from 0.Another factor in sustainable deficit is GDP growt, so when you add inflation and GDP growth you get about 5% sustainable deficit.
Purely arbitrary number. Origin: it was already selected earlier when the EU zone was formed as requirement, now this value is merely reinforced.Why does the EU Stability and Growth Pact sets the specific value of 3% of GDP for maximum budget deficit. Where does the number come from? Why specifically 3% instead of 2.5% or 3.5%?
Thank you
regards