EconPapers    
Economics at your fingertips  
 

A new framework for fiscal policy consolidation in Europe

Peter Bofinger () and Stefan Ried ()

No 03/2010, Working Papers from German Council of Economic Experts / Sachverständigenrat zur Begutachtung der gesamtwirtschaftlichen Entwicklung

Abstract: Current developments in Greece make clear that the rules of the European Stability and Growth Pact (SGP) were neither strict enough nor enforced strictly enough. To deal with the ongoing fiscal exit and its related phenomena of crisis, we propose a new framework for fiscal policy consolidation in Europe. Centre stage takes a European Consolidation Pact (ECP) supplementing the SGP, with five distinguishing features. First, members are obliged to detail a path to balancing their budgets, including a concrete course to cutting non-cyclical government expenditure, and second to implement an automatic tax increase law in case of straying from the defined path. Third, pact members may apply for ECP guarantees for each newly issued government debt that is in line with the specified path. These guarantees are, fourth, paid for by a percentage fee. Fifth, non-compliance with the automatic tax increase law or voluntary exit from the consolidation pact leaves future government bond issues without ECP guarantees: either the country does not need the guarantee any longer, or it is willing to default. In the latter case, the new framework spells out the details of an orderly government default.

Keywords: Stability and Growth Pact; European Consolidation Pact; Sovereign Default; European Monetary Fund (search for similar items in EconPapers)
JEL-codes: E6 F5 H6 (search for similar items in EconPapers)
Date: 2010
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8) Track citations by RSS feed

Downloads: (external link)
https://www.econstor.eu/bitstream/10419/74737/1/749370157.pdf (application/pdf)

Related works:
Journal Article: A new framework for fiscal policy consolidation in Europe (2010) Downloads
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:zbw:svrwwp:032010

Access Statistics for this paper

More papers in Working Papers from German Council of Economic Experts / Sachverständigenrat zur Begutachtung der gesamtwirtschaftlichen Entwicklung Contact information at EDIRC.
Bibliographic data for series maintained by ZBW - Leibniz Information Centre for Economics ().

 
Page updated 2020-08-02
Handle: RePEc:zbw:svrwwp:032010