The euro is unique in that it is a currency without a sovereign. Since the crisis, there have been major developments towards making the Eurozone more resilient, including the banking union and the European Stability Mechanism (ESM). This column, originally published 12 February 2016, explores whether further normalisation is required to make the Eurozone function properly. It argues that the Eurozone, unlike existing federations, lacks the ability to deliver counter-cyclical fiscal policies while complying with fiscal discipline. Macroeconomic coordination will thus require rules, a strong and independent European Fiscal Board, and the strengthening of the ESM.
Agnès Bénassy-Quéré, 08 April 2016
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.
Paolo Manasse, 01 December 2014
Today’s Eurozone fiscal discipline is the amalgamation of reforms implemented over ten years, with the latest and largest changes agreed in crisis settings. This column argues that the result fosters neither growth nor stability since actual fiscal policy has been powerfully procyclical. The focus on intermediate targets has distracted attention from the final objectives – debt sustainability and economic convergence. A drastic simplification of the current rules is proposed.
Marco Buti, Maria Demertzis, João Nogueira Martins, 30 March 2014
Although progress has been made on resolving the Eurozone crisis – vulnerable countries have reduced their current-account deficits and implemented some reforms – more still needs to be done. This column argues for a ‘consistent trinity’ of policies: structural reforms within countries, more symmetric macroeconomic adjustment across countries, and a banking union for the Eurozone.
Jacob Funk Kirkegaard, 06 February 2012
Europe’s new fiscal compact is seen by some as the death of Keynesian government spending. This column argues that such analysis is simply wrong. It says that there is still room for government spending in extreme situations, but that there are now more safeguards to maintain stability, reduce contagion, and placate German taxpayers.
Giancarlo Corsetti, John Hassler, Gilles Saint-Paul, Hans-Werner Sinn, Jan-Egbert Sturm, Xavier Vives, Michael P. Devereux, 11 March 2011
The EU’s Stability and Growth Pact stipulates that no member country can have a budget deficit exceeding 3% of GDP nor can it have public debt above 60% of GDP. In this column, authors from the European Economic Advisory Group ask what went wrong, denounce suggestions of Eurobonds, and propose a new three-stage crisis mechanism: the European Stability Mechanism.
Tito Boeri, 16 December 2010
Today the European Council meets to discuss a new package on economic governance. While this column praises the proposal’s acknowledgement of the dangers associated with external imbalances as well as fiscal imbalances, it is concerned about the approach to public and private debt, in particular the apparent weak stance towards the Stability and Growth Pact. Lessons from the Eurozone crisis do not appear to be learned.
Stanley W Black, 23 November 2010
With news that Ireland has applied for a bailout worth tens of billions or euros, the dark predictions for the future of the Eurozone grow ever bleaker. This column argues that the problems in the Eurozone’s periphery expose a flaw in its design. It proposes that the ECB set different interest rates for different member countries to help make matters better before they get any worse.
Marco Buti, Martin Larch, 25 October 2010
The European Commission’s proposals for stronger economic governance have been criticised in several columns on this site. Here, the European Commission’s economic team respond to the critics.
Francesco Giavazzi, Luigi Spaventa, 14 October 2010
The European Commission now recognises that fiscal discipline alone is not enough to ensure the stability of the euro. Yet this column argues that the new proposals to combat the Eurozone’s fragility are an empty and useless exercise – Europe’s policymakers should instead be worried about unchecked credit expansion.
Marco Buti, Martin Larch, 14 October 2010
The European Commission’s proposals for stronger economic governance in the EU have aroused both broad approval and outright condemnation. In this column, the European Commission’s Director-General for Economic and Financial Affairs outlines why he and colleagues are confident that the proposals will work.
Paolo Manasse, 07 October 2010
The European Commission has recently reviewed the Stability and Growth Pact. This column argues that, while such reform is urgently needed, the Commission’s proposals, with the exception of those concerning budgetary institutions, are naive and risk being counterproductive.
Paul De Grauwe, 04 October 2010
The European Commission has just presented its proposals to strengthen the Stability and Growth Pact. This column argues it is a very bad idea as it is based on a wrong diagnosis of the causes of the debt crisis in the Eurozone and because there cannot be taxation without representation. It suggests reforms should not only focus on the responsibilities of national governments but also on those of the ECB.
Charles Wyplosz, 04 October 2010
Can the Eurozone’s Stability and Growth Pact be made to work? This column argues that the European Commission’s reform proposals for the pact include some good ideas but many bad ones. If adopted, it says the pact will not significantly advance fiscal discipline in the Eurozone but it could turn out to be a transition to an effective framework.
Michael Burda, Stefan Gerlach, 17 June 2010
While the Stability and Growth Pact had good intentions, it failed because nothing happened when governments broke the rules. This essay proposes an enhanced Pact with increased fiscal transparency, an independent committee of fiscal experts, and a 1% tax on new debt above the 60% debt-to-GDP ratio. This would redistribute the costs of running Europe from the countries that have their house in order to those that don’t.
Peter Bofinger, Stefan Ried, 20 May 2010
Current developments in Greece have raised doubts over the efficacy of the European Stability and Growth Pact. This column proposes a new framework for fiscal policy consolidation in Europe to deal with the ongoing fiscal exit and its related phenomena of crisis. On centre stage should be a European Consolidation Pact.