The main driver of public debt increases in the last 4 years has been high public deficits, not austerity. Budget consolidation is necessary to avoid excessive increases in debt levels. The central question is about the best moment to pursue the adjustment. I provide a simple scenario analysis, which suggests that fiscal adjustment should be gradual in order to balance risks. Arguably, adjustment has been gradual in some though not all countries considered. The simulations suggest that significant recessions are still ahead of us. This calls for a Marshall plan for Southern Europe and a more forceful use of restructuring and resolution tools. Contracts could be a good way of providing fiscal support in exchange for reforms. Read more
Bruegel blog
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Austerity needed to start, now we need a fiscal union
25th February 2013
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The multiplier myth
22nd February 2013
Many international economists have recently claimed that fiscal multipliers are much larger now than in normal times. The economic recession in Europe’s South, so the view, is primarily to be attributed to the fiscal consolidation undertaken that together with the larger multipliers has had devastating effects. Many good arguments speak in favor of this interpretation, including the fact that overall government spending in the four largest economies in the euro area has been growing below inflation in the last 3 years despite a weakening growth performance. Read more
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What Mr Rehn should tell France.
21st February 2013
When he presents the forecasts on Friday, should Olli Rehn, the commission’s vice-president, coerce governments in France and other countries into further adjustment to ensure they meet their 2013 deficit targets? Or should he give them more time? It is a difficult balancing act. Read more
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Same old Europe
14th February 2013
The deal on the Multiannual Financial Framework 2014-2020, which will regulate the EU’s annual budget, is a missed opportunity. As in the past, the EU was captive to agonising negotiations in two separate European Councils for just a handful of money. The process clearly indicates that the EU budget is still perceived as an entitlement budget, from which each national government tries to extract the highest possible return. Read more
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How to read the EU budget deal? II
13th February 2013
Structural and Cohesion Funds, if properly used, can represent an important instrument for economic growth. The European Council conclusions of 8 February 2013 include the decision to impose a capping to the maximum amount of Structural and Cohesion Funds each member state can receive per year. The capping is set at 2.35 percent of GDP or 2.59 percent if average real growth over 2008-2010 was lower than - 1 percent. Read more
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How to read the EU budget deal? I
12th February 2013
Now that the European Council has approved the MFF 2014-2020 commentators are indulging on an evaluation of “who wins, who losses”, whether at stake are policy objectives or countries. The variety of opinions is disorienting at best. Read more
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L’Europe en morceaux
12th February 2013
Avec un David Cameron acharné à préserver son rabais et à dégraisser la bureaucratie bruxelloise et un François Hollande soucieux de sauvegarder les intérêts des agriculteurs hexagonaux, les négociations budgétaires de la semaine dernière ont offert l’apparence d’une dramaturgie familière. L’Europe, pourtant, n’est plus la même que lorsque Tony Blair et Jacques Chirac s’affrontaient sur ce même budget. Si elle s’est révélée à l’épreuve impuissante à faire des choix porteurs d’avenir et à y affecter des moyens, c’est pour beaucoup parce qu’elle est écartelée entre des pays aux situations économiques disparates, dont les priorités diffèrent au moins autant par nécessité que par fidélité à des positions doctrinales. Read more
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L’euro fort : fausses frayeurs et vrais dangers
11th February 2013
Les dirigeants français, François Hollande en tête, s’alarment de la remontée de l’euro. Leurs homologues allemands rétorquent qu’il n’est pas surévalué. Qui a raison ? L’affaire est assez compliquée pour mériter une réponse en plusieurs temps. Read more
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How to read the EU budget deal?
8th February 2013
The approval of the Multiannual Financial Framework (MFF) 2014-2020 was preceded by the usual agonizing negotiations, but a deal was eventually struck at the European Council of 8 February 2013. The latest deal is much lower than the European Commission’s proposal. Commitments go from 1033bn euros (1.08% of EU GNI) down to 960 bn euros (1% of EU GNI). Payments, which what is going to be truly disbursed over the next seven years, go down to 908.5bn from 988bn euros in the EC proposal. Compared with the MFF 2007-2013 it is reduction in the size of the budget in the order of 0.12% of EU GNI. Read more
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Blogs review: The Monetary Regime and the drawbacks of NGDP targeting
8th February 2013
What’s at stake: There has been much ink spilt (except maybe in the eurozone) over the last few years about the need to move away or at least complement the flexible inflation-targeting framework so that central banks can create expectations of future expansionary policy in a liquidity trap without changing its long-run goals. One idea – Nominal GDP targeting – has gathered most attention. After qualifying the idea as “powerful” and raising expectations of a possible future adoption, the Bank of England governor-designate Mark Carney reversed course and said that he was “far from convinced” by the idea in front of the Treasury select committee yesterday. While he didn’t lay out precisely the intellectual reasons for that change of heart, we’ve tried to put together some of the reasons put forward against NGDP targeting. Read more