The accomplishment of the Maastricht criteria with respect to initial debt

The reduction of government debt to 60% of the GDP in order to satisfy the requirements of the Maastricht Treaty for participation in the European Mon etary Union is one of the primary economic-policy goals for most of the Eur opean Union countries. The first aim of the present paper is to characteriz e the optimal path of the primary surplus that leads to the achievement of this Maastricht target. Using optimal-control theory we are able to determi ne an upper bound of the public-debt-to-GDP ratio above which no retrenchme nt policy becomes effective. The second issue taken up is that of the sensi tivity analysis with respect to the initial level of the debt-to-GDP ratio, the growth rate of the economy, the interest rate, the inflation rate, and the inverse of the velocity of the monetary base circulation.