"In Search of an Appropriate European Fiscal Framework"

October 12, 2004

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12/10/2004

 

"In Search of an Appropriate European Fiscal Framework"

By Catherine Mathieu and Henri Sterdyniak (OFCE Paris) Press Release Embargoed until 00:01 hours, Tuesday 12th October 2004 The existing frameworks for national budgetary policies at the EU level must be improved, particularly in the context of the enlargement of the European Union. The implementation of the Stability and Growth Pact illustrates how simple policy rules may not be enforceable if they lack sound economic rationale. In fact -

  • as many as twelve out of the twenty-five Member States are now breaching the 3% of GDP deficit threshold
  • the 60% debt criterion has been disregarded.

The European Commission, among others, has recently made proposals for reform. According to the authors of this paper “close-to-balance” budgetary positions should not necessarily be the main objective of the EU fiscal framework. They cite that -

  • a particular emphasis must be given to avoiding negative spillovers that can arise for all monetary union members when individual countries run excessive inflation, balance of payments current account deficits or allow greater debt build-up leading to higher default risks.

The authors call for the Eurogroup of finance ministers to be given a greater role in implementing explicit fiscal policy coordination within the euro area. They argue that national fiscal policies should be afforded more leeway to provide a stabilisation role for their domestic economies. This paper, by Catherine Mathieu and Henri Sterdyniak (OFCE Paris), will be presented at the “Budget Perspectives Conference”, co-hosted by The Economic and Social Research Institute and the Foundation for Fiscal Studies. Members of the Press are invited to attend the Conference, which will take place on Tuesday, 12th October, 2004, from 9 a.m. to 1 p.m. at the Hilton Dublin Hotel, Charlemont Place, Dublin 2.