Samenvatting

The outbreak of the Eurozone economic crisis in 2008 caused one of the most difficult challenges in the history of the European Union. Output and employed decreased and faith in the European project diminished. Leading European policy makers identified fiscal irresponsibility by some member states as the crisis´ principal cause. Therefore the governments of the Eurozone member states decided to strengthen the fiscal spending regulations of the Stability and Growth Pact (SGP) with stricter rules termed the “Fiscal Compact”. The aim of this action was to prevent future crisis and thus to ensure the Eurozone´s economic stability. This thesis is an assessment of the effectiveness of the “Fiscal Compact” rules as a safeguard of economic stability. The thesis uses a theory on economic instability of the American economist Hyman P. Minsky as the theoretical framework for assessment. All information have been collected through desk research. The thesis mainly focuses on qualitative information but does also use quantitative data to substantiate the theory. The central conclusion of the thesis is that the rules of the “Fiscal Compact” do have a positive impact on stability in the monetary union but are not sufficient and should be extended with further policies. This is because the analysis shows that excessive government deficits are not the sole threats for economic stability. Private investment behaviour also has to be considered. One policy recommended by this paper is the establishment of an early-warning system for destabilizing investment in the Eurozone. The second recommendation is the continuation of talks for the introduction of a European financial transaction tax