Jasper De Jong, Niels Gilbert, 15 January 2019

The Stability and Growth Pact has been criticised by some for imposing fiscal tightening during recessions, and by others for a lack of compliance. Using a database of all country-specific Excessive Deficit Procedure recommendations since the introduction of the euro, this column shows that the corrective arm of the pact, which is procyclical by design, is an important driver of euro area fiscal policy. The preventive arm, which is designed to avoid the need for such procyclical policies, is much less effective and reform of the pact should focus on addressing this.

Olivier Blanchard, 15 June 2015

Greece’s negotiations with its creditors is at a critical point. This column, by the IMF’s Chief Economist, discusses the offer made to the Greek government. For the deal to work, the Greek government needs a credible budget plan for attaining the targeted surpluses, and European creditors need to agree to significant additional financing, and to debt relief sufficient to maintain debt sustainability. Under the existing proposal, debt relief can be achieved through a long rescheduling of debt payments at low interest rates.

Carlo Cottarelli, 02 March 2015

The European Commission has clarified the flexibility in existing Eurozone fiscal rules. This column argues that the emphasis on structural rather than headline deficits is desirable but requires identification of potential growth rates. The way the Commission currently estimates potential output yields potential growth estimates that are very low. Thus, a year of modest expected growth like 2015 may be treated as a year of economic boom that requires faster than normal fiscal adjustments.

Carlo Cottarelli, 08 February 2012

Almost everyone agrees that the fiscal accounts of several advanced economies are in a pretty bad shape and need to be strengthened. But how rapid should the adjustment be in the present circumstances? At times over the last couple of years the IMF called on countries to step up the pace of adjustment when we thought they were moving too slowly. This column says that in the current environment, some might be going too fast.

Alberto Alesina, Giampaolo Lecce, Dorian Carloni, 29 May 2010

The market turmoil in recent weeks pose a key question: can European governments credibly commit to cutting their deficits? This column presents evidence that fiscal adjustments do not increase the likelihood of electoral defeat for incumbent governments. Europe’s fiscal problems can be solved – it is now up to today’s leaders to step up.

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