EU policies

Pierre Beynet, 11 October 2018

European fiscal rules have become overly complex over time. Some consider them too lax to ensure fiscal sustainability, while others see them as too rigid to ensure adequate smoothing of economic activity in bad times. This column, part of the Vox debate on euro area reform, argues that to make the rules more effective, they should be simplified and focus on expenditure growth, while avoiding reliance on unobservable concepts such as structural fiscal balances. Increased ownership requires more flexibility and built-in positive incentives, such as allowing deviations when financed with GDP-linked bonds, which would also improve fiscal sustainability.

Julien Acalin, 10 October 2018

The idea of growth-indexed bonds has recently regained momentum in policy circles, but research has shown they are unlikely to substantially decrease the risk of a debt explosion in advanced economies if not issued through a large and coordinated mechanism. This column, part of the VoxEU debate on euro area reform, proposes such a mechanism for the euro area – a European Debt Agency issuing securitised safe and risky European bonds backed by country-specific growth-indexed bonds.

Antonio Fatás, 28 September 2018

The damage done by procyclical fiscal policy in the euro area between 2010 and 2014 is likely to be even larger than previous studies have suggested. The column argues that fiscal policymakers at the time created a 'doom loop', with unfounded pessimism feeding into policy, and the consequences of those policies increasing pessimism. This has created hysteresis, permanently reducing GDP. 

Peter Bofinger, 13 September 2018

Two proposals for reforming the euro area’s fiscal framework were published on Vox yesterday. This column describes how, in essence, the proposal from the French economists is based on discretionary policy decisions while their German counterparts propose a largely rules-based approach. It also argues that with its assumption that the medium-term goals of fiscal policy cannot be determined by simple formulas, the French proposal is closer to the status quo than the German concept and has a greater likelihood of resulting in good fiscal policy.

Coen Teulings, 13 September 2018

The decade following the Lehman Brothers bankruptcy was a traumatic period for the euro area. Though the financial crisis originated in the US, the recovery there was quicker than in the euro area, and the output loss in the euro area appears to be about 15% compared to ‘only’ 10% for the US. This column argues that the imbalance between monetary and fiscal integration seems to have been an important factor behind the euro area being hit more severely than the US. A revision of the fiscal rules is needed.

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