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When Keynes goes to Brussels: a new fiscal rule for the EMU

Francesco Saraceno ()

No 2016-32, Sciences Po publications from Sciences Po

Abstract: The Economic and Monetary Union (EMU) institutions are consistent with a New Consensus that emerged in the 1980s, limiting the role for macroeconomic (particularly fiscal) policy to short term stabilizations by means of rules. I will argue that the policy inertia induced by the Consensus may have played a role in the disappointing performance of EMU economies even before the crisis. The crisis of the Consensus, and the debate on secular stagnation, proved that Keynesian (and possibly) persistent excesses of savings over investment may hamper growth. This has put fiscal policy back to the center of the scene, and given the General Theory, at eighty, a second youth. I will argue therefore that the EMU fiscal rule should be amended to allow semi-permanent negative government savings. I will finally argue that a modified Golden Rule may serve this objective, and allow EU-wide policy coordination. This seems the only reasonable reform with some chances of being adopted by the EU divided policy makers.

Keywords: Fiscal rules; Fiscal policy; EMU; Golden rules; Secular stagnation; Keynes; Policy mix (search for similar items in EconPapers)
JEL-codes: B22 E62 E2 E65 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-mac and nep-pke
Date: 2016-12
References: View references in EconPapers View complete reference list from CitEc
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Journal Article: When Keynes Goes to Brussels: A New Fiscal Rule for the EMU? (2017) Downloads
Working Paper: When Keynes goes to Brussels: a New Fiscal Rule for the EMU ? (2016) Downloads
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