FISCAL POLICY IN EUROLAND

Daniela Gabor
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Daniela Gabor: Institute for Economic Forecasting, Romanian Academy, Bucharest

Journal for Economic Forecasting, 2002, issue 2, 51-57

Abstract: The paper begins by presenting the optimum currency areas theory, analyses the case of the EMU pointing out that in the EMU budgets are not centralized. The EU budget cannot redistribute wealth due to its small size and lack in taxation and expenditure; also, wages in Europe are inflexible and there is a low degree of labor mobility. The flexibility allowed to national fiscal policies is strictly restrained by the Maastricht Treaty and the Growth and Stability Pact. The author demonstrates that fiscal policy is not the flexible instrument required by the optimum currency area theory. The paper concludes that for the moment the member countries have to content themselves with the Maastricht criteria and the Stability Pact, which are focused on strict rules in fear of unsustainable deficits and debts at the expense of flexibility.

Keywords: fiscal policy; EMU (search for similar items in EconPapers)
JEL-codes: H87 (search for similar items in EconPapers)
Date: 2002
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Persistent link: https://EconPapers.repec.org/RePEc:rjr:romjef:v::y:2002:i:2:p:51-57

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