EU institutions

Stephan Haroutunian, Sebastian Hauptmeier, Nadine Leiner-Killinger, Philip Muggenthaler, 13 May 2022

The economic landscape has changed dramatically since the European fiscal rules were designed some 30 years ago. This column contributes to the debate on reform by proposing a two-tier fiscal framework combining an expenditure rule that accounts for the ECB’s inflation objective with a lower speed of adjustment under the Stability and Growth Pact’s debt rule. Counter-cyclicality may be improved by automatic modulation of adjustment requirements, creating fiscal space when domestic inflation is low and constraining more when inflation is above target. The link to the debt anchor ensures a gradual phasing-in of debt reduction in the aftermath of COVID-19.

Agnès Bénassy-Quéré, 06 May 2022

The role of fiscal rules is to ensure debt sustainability and predictability of fiscal policies. It is possible to make them simpler and more friendly to countercyclical policies. Rather than allowing for different investment priorities, this column argues that the Covid crisis, the climate emergency, and Russia's invasion of Ukraine and subsequent security concerns may require a holistic approach where better compliance with fiscal rules could be combined with a holistic definition of sustainability that would also include macroeconomic and green sustainability.

Massimo Amato, Everardo Belloni, Carlo Favero, Lucio Gobbi, Francesco Saraceno, 22 April 2022

A European Debt Agency could greatly help in implementing a new fiscal policy strategy in Europe. This column identifies fluctuations in bond prices over the past 20 years that such an agency could have prevented, and argues that the agency could absorb the entire euro area debt while reducing its size due to less volatile price dynamics. A European Debt Agency could be used to hedge member states' financing from market sentiment vagaries, create a European safe asset, relieve the ECB of burden of debt management, and manage the implementation of fiscal rules efficiently.

Lucrezia Reichlin, Giovanni Ricco, Anshumaan Tuteja, 14 April 2022

The ECB has to decide not only on the timing and speed of exit from monetary easing, but also on the sequence. This column uses an empirical model to show that a short-term interest rate tightening in the euro area has undesired effects on output, inflation, and stock market prices if it is coupled with a widening of sovereign spreads. To be effective, the combination of monetary policy instruments as well as the sequence of the use of the tools in the announced tightening cycle must ensure both an increase in the position of the ‘risk-free’ yield curve and control of sovereign spreads. 

Marco Buti, Marcello Messori, 11 April 2022

The EU’s domestic and international agendas are usually discussed in various forums. Given the fallout from the Covid crisis and the dramatic consequences of the Russian invasion of Ukraine, this column argues that these agendas should eventually merge. A central fiscal capacity is a key element for reconciling the EU’s domestic and international goals. Domestically, it would help achieve a balanced policy mix and ensure an adequate supply of European public goods, and globally it would give credibility to the geo-economic role of the EU. 

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