Fiscal Discipline for Growth: The Remedy or the Illusion in the Context of the Euro Area Crisis

Sinan Sönmez
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Sinan Sönmez: Atilim University

No 233, EY International Congress on Economics I (EYC2013), October 24-25, 2013, Ankara, Turkey from Ekonomik Yaklasim Association

Abstract: Ever since the outbreak of the sovereign debt crisis, coordinating economic growth with fiscal sustainability has been on the European agenda. Fiscal consolidation calls for fiscal sustainability and austerity programs. But at present economic contraction/recession is the main problem, particularly in the Euro area. The problem has therefore transformed to one of combining and/or coordinating economic growth with fiscal sustainability. As fiscal discipline is a pivotal element of macroeconomic stability and fiscal sustainability, it is necessary to focus on fiscal rules and fiscal consolidation. Fiscal discipline in fact plays the main role in achieving fiscal and public debt sustainability. The approach that is currently in vogue is based on rules-based fiscal policy. It is in this context that rules-based fiscal policies continue to be implemented throughout the globe. The question to be answered, therefore, is whether economic growth and fiscal discipline can be reconciled? In other words, how does one engage the economy on a growth path in the context of fiscal austerity? In times of financial and economic crisis can fiscal rules and discipline be considered a universal prescription to overcome macroeconomic distortions and open the door to economic growth, or is this just an illusion? This paper investigates the problem of coordinating economic growth with fiscal sustainability and discipline.

Keywords: Fiscal Discipline; Austerity; Fiscal Compact; Growth; Euro Area Crisis (search for similar items in EconPapers)
JEL-codes: F61 F62 H60 H62 (search for similar items in EconPapers)
Pages: 14 pages
Date: 2013
New Economics Papers: this item is included in nep-fdg and nep-pbe
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