Skip to: search, navigation, or content.


Indiana University Bloomington

BEPP

The Kelley Advantage

The department is home to the authors of Managerial Economics and Business Strategy and Games and Information: An Introduction to Game Theory, two of the nation’s leading textbooks in the field.

Research and Publications

Working Papers

The Sustainability of Public Finances and Fiscal Policy Coordination in the EMU

2010

Juergen von Hagen

Abstract

The financial crisis of 2007-2009 led to a renewed increase in government deficits and debts in many EU countries, causing a full-fledged fiscal crisis in Greece and severe fiscal pressures in other euro-area countries. This has prompted a series of proposals for improving the fiscal framework of the European Monetary Union, the Excessive Deficit Procedure and the Stability and Growth Pact. The first part of this paper reviews the main properties and developments of that framework until 2007. On that basis, it discusses the recent proposals for reform, which range from marginal improvements of the existing framework to the introduction of an explicit framework for managing fiscal crises in the member states, and the expansion of the scope of policy coordination to address macro economic imbalances and the competitiveness of the member states. We find the proposal of a mechanism for dealing with government default most useful. Attempts to suppress current account imbalances and to target national competitiveness positions would most likely result in serious economic losses and do damage to the internal market of the EU. This would increase the wedge between members and non-members of the euro area.

Citation

Jürgen von Hagen, 2010. "The Sustainability of Public Finances and Fiscal Policy Coordination in the EMU", 412, CASE-Center for Social and Economic Research.

Keywords

Excessive Deficit Procedure, Stability and Growth Pact, Sovereign Default, Fiscal Crises