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Limiting Public Expenditure to Ensure Public Debt Sustainability in the EMU

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  • Séverine Menguy

Abstract

In the European Economic and Monetary Union, the fiscal background must ensure the sustainability of the public debt, but fiscal policies must also keep enough flexibility to stabilize global economic activity in case of large shocks, as the common monetary policy becomes less efficient. In the prospect of a reform of the Fiscal Compact after the standby of European fiscal rules with the COVID-19 health crisis, and in conformity with theoretical studies underlying the advantages of such rules, the current paper suggests a rule related to nominal public expenditure excluding interest rates, with a debt feedback mechanism to ensure the sustainability of the public debt path. According to this rule, it appears that six Economic and Monetary Union member countries are particularly highly indebted and should probably control and reduce their public expenditure in order to make their public debt sustainable: France, Spain, Italy, Belgium, Portugal, and Greece.

Suggested Citation

  • Séverine Menguy, 2024. "Limiting Public Expenditure to Ensure Public Debt Sustainability in the EMU," Public Finance Review, , vol. 52(1), pages 78-110, January.
    • Handle: RePEc:sae:pubfin:v:52:y:2024:i:1:p:78-110
    DOI: 10.1177/10911421231210730
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    References listed on IDEAS

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    1. European Fiscal Board (EFB), 2019. "Assessment of EU fiscal rules with a focus on the six and two-pack legislation," Reports 2019, European Fiscal Board.
    2. Till Cordes & Mr. Tidiane Kinda & Ms. Priscilla S Muthoora & Miss Anke Weber, 2015. "Expenditure Rules: Effective Tools for Sound Fiscal Policy?," IMF Working Papers 2015/029, International Monetary Fund.
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