The Eurozone’s evolving fiscal ecosystem: mitigating fiscal discipline by governing through off-balance-sheet fiscal agencies

Andrei Guter-Sandu and Steffen Murau

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: The original Maastricht regime designed the Eurozone’s fiscal segment in a way that sought to keep member states’ treasury budgets balanced by disciplining them through market forces, reducing the overall volume of public indebtedness, prohibiting monetary financing, and avoiding that Eurozone treasuries bail each other out. In this article, we analyse how these ‘neoliberal’ rules for fiscal governance have been gradually superseded by an alternative approach that we call ‘governing through off-balance-sheet fiscal agencies’ (OBFAs). OBFAs are special purpose vehicles that complement treasuries in supporting public investment, offering solvency insurance for banks, providing capital insurance of last resort for other treasuries, and expanding the stock of safe assets. By sponsoring OBFAs, treasuries can substitute ‘actual’ liabilities on their balance sheets, which are potentially in conflict with the EU’s neoliberal fiscal rules, with ‘contingent’ liabilities – guarantees that do not appear on-balance-sheet. Together, national and supra-national treasuries and OBFAs form a ‘fiscal ecosystem’ in which neoliberal fiscal rules get re-emphasised but in practice are increasingly mitigated. This new mode of Eurozone fiscal governance is reflected not only in multiple policies implemented since 2010 – the Recovery and Resilience Facility for example – but also represents the main strategy in many Eurozone reform proposals.

Keywords: critical macro-finance; neoliberalism; Eurocrisis; European Stability Mechanism; recovery and resilience facility; UKRI block grant (search for similar items in EconPapers)
JEL-codes: M40 (search for similar items in EconPapers)
Pages: 19 pages
Date: 2022-01-02
New Economics Papers: this item is included in nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

Published in New Political Economy, 2, January, 2022, 27(1), pp. 62 - 80. ISSN: 1356-3467

Downloads: (external link)
http://eprints.lse.ac.uk/109790/ Open access version. (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:109790

Access Statistics for this paper

More papers in LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library LSE Library Portugal Street London, WC2A 2HD, U.K.. Contact information at EDIRC.
Bibliographic data for series maintained by LSERO Manager ().