Book contents
- The Cambridge Handbook of European Monetary, Economic and Financial Integration
- The Cambridge Handbook of European Monetary, Economic and Financial Integration
- Copyright page
- Contents
- Contributors
- Introduction
- Part I The Economic and Monetary Union
- Part II The Monetary Dimension
- Part III The Economic and Fiscal Dimensions
- 15 Reviving the Case for Policy Coordination in EMU
- 16 Ten Years of the European Semester
- 17 The EU Fiscal Rules
- 18 National Fiscal Policy in EMU
- 19 The Politics of Fiscal Integration in Eurozone Reforms and Next Generation EU
- 20 Adjustments in Economic Crises
- 21 Designing a Permanent EU-Wide Stabilization Facility
- 22 Enhancing Private and Public Risk Sharing
- Part IV Financial Integration
- Index
- References
18 - National Fiscal Policy in EMU
Insufficient Sustainability and Stabilization?
from Part III - The Economic and Fiscal Dimensions
Published online by Cambridge University Press: 28 September 2023
Book contents
- The Cambridge Handbook of European Monetary, Economic and Financial Integration
- The Cambridge Handbook of European Monetary, Economic and Financial Integration
- Copyright page
- Contents
- Contributors
- Introduction
- Part I The Economic and Monetary Union
- Part II The Monetary Dimension
- Part III The Economic and Fiscal Dimensions
- 15 Reviving the Case for Policy Coordination in EMU
- 16 Ten Years of the European Semester
- 17 The EU Fiscal Rules
- 18 National Fiscal Policy in EMU
- 19 The Politics of Fiscal Integration in Eurozone Reforms and Next Generation EU
- 20 Adjustments in Economic Crises
- 21 Designing a Permanent EU-Wide Stabilization Facility
- 22 Enhancing Private and Public Risk Sharing
- Part IV Financial Integration
- Index
- References
Summary
Two main goals of the Stability and Growth Pact (SGP) are fiscal sustainability and fiscal policies’ contribution to economic stabilization. However, from the very beginning, several Member States of the European Economic Monetary Union (EMU) failed to stay within the SGP’s reference values, all too often leading to large fiscal imbalances, procyclical fiscal policies, and public debt overhangs. The SGP has therefore been revised several times to improve the enforceability and flexibility of the fiscal rules. In practice, however, these amendments made the European fiscal framework overly complex and incoherent, leaving national governments with too little incentive to pursue a prudent fiscal stance. To (better) promote fiscal sustainability in the EMU, the current weaknesses of the SGP need to be addressed. Several options have been suggested, mainly to decentralize the responsibility for fiscal discipline back to the national level or to reform the current framework. Notably, the latter option seems more likely to be implemented. Most proposals suggest a prominent role for an expenditure rule, augmented with a debt anchor. These proposals make perfect sense, but a discussion on the effectiveness and reform of the SGP shows that they will not remedy all current shortcomings of the fiscal rules.
- Type
- Chapter
- Information
- Publisher: Cambridge University PressPrint publication year: 2023
References
Alesina, A. and Tabellini, G. (1990). A positive theory of fiscal deficits and government debt. Review of Economic Studies 57, 403–414.CrossRefGoogle Scholar
Alt, J. E., Lassen, D. D., and Wehner, J. (2014). It isn’t just about Greece: Domestic politics, transparency, and fiscal gimmickry. British Journal of Political Science 44, 707–716.CrossRefGoogle Scholar
Amtenbrink, F., and de Haan, J. (2003). Economic governance in the European Union: Fiscal policy discipline versus flexibility. Common Market Law Review 40, 1075–1106.Google Scholar
Amtenbrink, F., de Haan, J., and Sleijpen, O. C. H. M. (1997). Stability and Growth Pact: Placebo or panacea? European Business Law Review 8 and 9/10, 202–210; 223-238.Google Scholar
Asatryan, Z., Castellón, C., and Stratmann, T. (2018). Balanced budget rules and fiscal outcomes: Evidence from historical constitutions. Journal of Public Economics 167, 105–119.Google Scholar
Bayoumi, T., and Masson, P. R. (1995). Fiscal flows in the United States and Canada: Lessons for Monetary Union in Europe. European Economic Review 39(2), 253–274.Google Scholar
Beetsma, R., Debrun, X., Fang, X., Kim, Y., Lledó, V., Mbaye, S., and Zang, X. (2019). Independent fiscal councils: Recent trends and performance. European Journal of Political Economy 57, 53–69.Google Scholar
Beetsma, R., Debrun, X., and Klaassen, F. (2001). Is fiscal policy coordination in EMU desirable? Swedish Economic Policy Review 8, 57–98.Google Scholar
Begg, I. (2017). Fiscal and other rules in EU economic governance: Helpful, largely irrelevant or unenforceable? National Institute Economic Review No. 239, R3–R13.Google Scholar
Blanchard, O., Leandro, A., and Zettelmeyer, J. (2021). Redesigning EU fiscal rules: From rules to standards. Economic Policy 36(106), 195–236.Google Scholar
Blinder, A., Ehrman, M., de Haan, J., and Jansen, D. (2017). Necessity as the mother of invention: Monetary policy after the crisis. Economic Policy 32(92), 707–755.Google Scholar
Bonam, D., de Haan, J., and Soederhuizen, B. (2022). The effects of fiscal policy at the effective lower bound. Macroeconomic Dynamics 26(1), 149–185.Google Scholar
Buiter, W. H. (2004) Two naked emperors? Concerns about the Stability & Growth Pact and second thoughts about central bank independence. Fiscal Studies 25, 249–277.Google Scholar
Burret, H. T., and Feld, L. P. (2018). (Un-)intended effects of fiscal rules. European Journal of Political Economy 52, 166–191.Google Scholar
Buti, M., and Carnot, N. (2012). The EMU debt crisis: Early lessons and reforms. Journal of Common Market Studies 50(6), 899–911.CrossRefGoogle Scholar
Caselli, F., and Reynaud, L. (2020). Do fiscal rules cause better fiscal balances? A new instrumental variable strategy. European Journal of Political Economy 63, 101873.Google Scholar
Caselli, F., and Wingender, P. (2018). Bunching at 3 percent: The Maastricht fiscal criterion and government deficits. IMF Working Paper No. 18/182.Google Scholar
Christofzik, D. I., Feld, L. P., Reuter, W. H., and Yeter, M. (2018). Uniting European fiscal rules: How to strengthen the fiscal framework. German Council of Economic Experts Working Paper No. 04.Google Scholar
Cimadomo, J. (2016). Real-time data and fiscal policy analysis: A survey of the literature. Journal of Economic Surveys 30, 302–326.Google Scholar
Combes, J., Minea, A., and Sow, M. (2017). Is fiscal policy always counter- (pro-)cyclical? The role of public debt and fiscal rules. Economic Modelling 65, 138–146.CrossRefGoogle Scholar
Darvas, Z., Martin, P., and Ragot, X. (2018). European fiscal rules require a major overhaul. Policy Contribution No. 18. Brussels: Bruegel.Google Scholar
De Haan, J., Berger, H., and Jansen, D. (2004). Why has the Stability and Growth Pact failed? International Finance 7(2), 235–260.CrossRefGoogle Scholar
De Jong, J. F. M., and Gilbert, N. D. (2020). Fiscal discipline in EMU? Testing the effectiveness of the Excessive Deficit Procedure. European Journal of Political Economy 61, 101822.Google Scholar
Debrun, X., and Jonung, L. (2019). Under threat: Rules-based fiscal policy and how to preserve it. European Journal of Political Economy 57, 142–157.Google Scholar
Dolls, M., Fuest, C., and Peichl, A. (2012). Automatic stabilizers and economic crisis: US vs. Europe. Journal of Public Economics 96(3–4), 279–294.CrossRefGoogle Scholar
Draghi, M. (2014). Unemployment in the euro area. Speech by Mario Draghi, President of the ECB, Annual central bank symposium in Jackson Hole, 22 August. www.ecb.europa.eu/press/key/date/2014/html/sp140822.en.htmlGoogle Scholar
European Central Bank (2011). The reform of economic governance in the Euro Area – Essential elements. ECB Monthly Bulletin, March 2011, 99–119.Google Scholar
European Fiscal Board (2019). Assessment of EU fiscal rules with a focus on the six and two-pack legislation. August 2019.Google Scholar
Eyraud, L., Gaspar, V., and Poghosya, T. (2017). Fiscal politics in the euro area. In Gaspar, V. et al. (eds.), Fiscal Politics. Washington, DC, International Monetary Fund.Google Scholar
Feld, L., Schmidt, C., Schnabel, I., and Wieland, V. (2018). Refocusing the European fiscal framework. VoxEU.org, 12 September.Google Scholar
Gali, J., and Monacelli, T. (2008). Optimal monetary and fiscal policy in a currency union. Journal of International Economics 76, 116–132.Google Scholar
Gilbert, N. D., and de Jong, J. F. M. (2017). Do the European fiscal rules induce a bias in fiscal forecasts? Evidence from the Stability and Growth Pact. Public Choice 170(1), 1–32.Google Scholar
Golinelli, R., and Momigliano, S. (2009). The cyclical reaction of fiscal policies in the euro area: The role of modelling choices and data vintages. Fiscal Studies 30, 39–72.Google Scholar
Gootjes, B., and de Haan, J. (2022a). Procyclicality of fiscal policy in European Union countries. Journal of International Money and Finance 120, 102276.Google Scholar
Gootjes, B., and de Haan, J. (2022b). Do fiscal rules need budget transparency to be effective? European Journal of Political Economy 120, 102210.Google Scholar
Gootjes, B., de Haan, J., and Jong-A-Pin, R. M. (2021). Do fiscal rules constrain political budget cycles? Public Choice 188, 1–30.Google Scholar
Gros, D. (2016). The second death of the Stability Pact and the birth of an inter-governmental Europe. Centre for European Policy Studies commentary, 28 July. www.ceps.eu/ceps-publications/second-death-stability-pact-and-birth-inter-governmental-europe/Google Scholar
Guerguil, M., Mandon, P., and Tapsoba, R. (2017). Flexible fiscal rules and countercyclical fiscal policy. Journal of Macroeconomics 52, 189–220.Google Scholar
Huidrom, R., Kose, M. A., Lim, J. J., and Ohnsorge, F. L. (2019). Why do fiscal multipliers depend on fiscal positions? CAMA Working Paper No. 28/2019.Google Scholar
Kamps, C., and Leiner-Killinger, N. (2019). Taking stock of the functioning of the EU fiscal rules and options for reform. ECB Occasional Study No. 231.Google Scholar
Koen, V., and van den Noord, P. (2005). Fiscal gimmickry in Europe: One-off measures and creative accounting. OECD Economics Department Working Paper No. 417.Google Scholar
Kopits, G. (2018a). How could the Stability and Growth Pact be simplified? Directorate-General for Internal Policies of the Union, Economic and Monetary Committee, European Parliament. www.europarl.europa.eu/RegData/etudes/IDAN/2018/614509/IPOL_IDA(2018)614509_EN.pdfGoogle Scholar
Kopits, G. (2018b). Some myths about independent fiscal institutions. In Beetsma, R. and Debrun, X. (eds.), Independent Fiscal Councils: Watchdogs or Lapdogs? London: Centre for Economic Policy Research.Google Scholar
Kopits, G., and Symansky, S. A. (1998). Fiscal policy rules. IMF Occasional Paper No. 162.CrossRefGoogle Scholar
Landon, S., and Smith, C. (2017). Does the design of a fiscal rule matter for welfare? Economic Modelling 63, 226–237.Google Scholar
Larch, M., and Braendle, T. (2018). Independent fiscal councils: Neglected siblings of independent central banks? An EU perspective. Journal of Common Market Studies 56(2), 267–283.Google Scholar
Larch, M., and Santacroce, S. (2020). Numerical compliance with EU fiscal rules: The compliance database of the Secretariat of the European Fiscal Board. https://commission.europa.eu/business-economy-euro/economic-and-fiscal-policy-coordination/european-fiscal-board-efb/compliance-tracker_enGoogle Scholar
Larch, M., Orseau, E., and van der Wielen, W. (2021). Do EU fiscal rules support or hinder counter-cyclical fiscal policy? Journal of International Money and Finance 112, art. 102328.Google Scholar
Maltritz, D., and Wüste, S. (2015). Determinants of budget deficits in Europe: The role and relations of fiscal rules, fiscal councils, creative accounting and the Euro. Economic Modelling 48, 222–236.Google Scholar
Milesi-Ferretti, G. M. (2004). Good, bad or ugly? On the effects of fiscal rules with creative accounting. Journal of Public Economics 88, 377–394.Google Scholar
Nerlich, C., and Reuter, W. H. (2015). Fiscal rules, fiscal space and procyclical fiscal policy. ECB Working Paper 1872.Google Scholar
Persson, T., and Svensson, L. E. O. (1989). Why a stubborn conservative would run a deficit: Polity with time-inconsistent preferences. Quarterly Journal of Economics 104, 325–345.Google Scholar
Poghosyan, T. (2017). Cross-country spillovers of fiscal consolidations in the euro area. IMF Working Paper No. 17/140.Google Scholar
Reuter, W. H. (2020). Benefits and drawbacks of an ‘expenditure rule’, as well as of a ‘golden rule’, in the EU fiscal framework. IPOL Economic Governance Support Unit, PE 645.732.Google Scholar
Schaechter, A., Kinda, T., Budina, N., and Weber, A. (2012). Fiscal rules in response to the crisis – Toward the ‘next-generation’ rules. A new dataset. IMF Working Paper No. 12/187.Google Scholar
Schaltegger, C. A., and Weder, M. (2015). Fiscal adjustments and the probability of sovereign default. Kyklos 68, 81–110.CrossRefGoogle Scholar
Shi, M., and Svensson, J. (2006). Political budget cycles: Do they differ across countries and why? Journal of Public Economics 90, 1367–1389.Google Scholar
Velasco, A. (2000). Debts and deficits with fragmented fiscal policymaking. Journal of Public Economics 76, 105–125.Google Scholar
Von Hagen, J., and Wolff, G. (2006). What do deficits tell us about debt? Empirical evidence on creative accounting with fiscal rules in the EU. Journal of Banking & Finance 30, 3259–3279.Google Scholar
Wiese, R., Jong-A-Pin, R., and de Haan, J. (2018). Can successful fiscal adjustments only be achieved by spending cuts? European Journal of Political Economy 54, 145–166.Google Scholar
Wyplosz, C. (2019). Fiscal discipline in the Eurozone: Don’t fix it, change it. Ifo DICE Report, Summer 2019, 17, 3–6.Google Scholar
- 1
- Cited by