The Sustainability of Public Finanaces and Fiscal Policy Coordination in the EMU

Juergen von Hagen

No 412, CASE Network Studies and Analyses from CASE-Center for Social and Economic Research

Abstract: The financial crisis of 2007-2009 led to a renewed increase in government deficits and debts in many EU countries, causing a full-fledged fiscal crisis in Greece and severe fiscal pressures in other euro-area countries. This has prompted a series of proposals for improving the fiscal framework of the European Monetary Union, the Excessive Deficit Procedure and the Stability and Growth Pact. The first part of this paper reviews the main properties and developments of that framework until 2007. On that basis, it discusses the recent proposals for reform, which range from marginal improvements of the existing framework to the introduction of an explicit framework for managing fiscal crises in the member states, and the expansion of the scope of policy coordination to address macro economic imbalances and the competitiveness of the member states. We find the proposal of a mechanism for dealing with government default most useful. Attempts to suppress current account imbalances and to target national competitiveness positions would most likely result in serious economic losses and do damage to the internal market of the EU. This would increase the wedge between members and non-members of the euro area.

Keywords: Excessive Deficit Procedure; Stability and Growth Pact; Sovereign Default; Fiscal Crises (search for similar items in EconPapers)
JEL-codes: F42 F55 H63 H68 (search for similar items in EconPapers)
Pages: 55 Pages
Date: 2010-10
New Economics Papers: this item is included in nep-cba, nep-eec and nep-pub
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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