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Saving Europe’s Automatic Stabilizers

In: The Impact of the Euro

Author

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  • Barry Eichengreen

Abstract

What is the role for fiscal policy in Europe’s monetary union? This question is addressed in the MacDougall Report (1977), the Delors Report (1989), and the Maastricht Treaty (1991). The MacDougall Report emphasized the need for fiscal federalism at the EU level to offset asymmetric shocks once monetary independence is lost. It estimated that an EU budget of at least 5 per cent of European GDP was needed to carry out this task. The Delors Report (para. 30) acknowledged that a central budget of this magnitude might not be feasible politically and called instead for the closer coordination of fiscal policies. It argued this case on the grounds that virtually all federations possess budgetary mechanisms with powerful ‘shock-absorbers’ effects’ that dampen `the amplitude either of economic difficulties or of surges in prosperity of individual states. This is both the product and the source of national solidarity, which all relevant economic and monetary unions share’ (Delors, 1989). The implication is that fiscal federalism is necessary to ensure the smooth operation of Europe’s monetary union and to prevent a political backlash against the project.

Suggested Citation

  • Barry Eichengreen, 2000. "Saving Europe’s Automatic Stabilizers," Palgrave Macmillan Books, in: Mark Baimbridge & Brian Burkitt & Philip Whyman (ed.), The Impact of the Euro, chapter 6, pages 87-99, Palgrave Macmillan.
    • Handle: RePEc:pal:palchp:978-0-230-37244-3_6
    DOI: 10.1057/9780230372443_6
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    References listed on IDEAS

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    1. Barry Eichengreen, 1992. "Is Europe an Optimum Currency Area?," Palgrave Macmillan Books, in: Silvio Borner & Herbert Grubel (ed.), The European Community after 1992, chapter 8, pages 138-161, Palgrave Macmillan.
    2. Tamim Bayoumi & Barry Eichengreen, 1995. "Restraining Yourself: The Implications of Fiscal Rules for Economic Stabilization," IMF Staff Papers, Palgrave Macmillan, vol. 42(1), pages 32-48, March.
    3. Buiter, W.H. & Corsetti, G. & Roubini, N., 1992. "Excessive Deficits: Sense and Nonsence in the Treaty of Maastricht," Papers 674, Yale - Economic Growth Center.
    4. von Hagen, Jurgen & Hammond, George W, 1998. "Regional Insurance against Asymmetric Shocks: An Empirical Study for the European Community," The Manchester School of Economic & Social Studies, University of Manchester, vol. 66(3), pages 331-353, June.
    5. Melitz, Jacques & Vori, Silvia, 1992. "National Insurance Against Unevenly Distributed Shocks in a European Monetary Union," CEPR Discussion Papers 697, C.E.P.R. Discussion Papers.
    6. Gilles Oudiz & Jeffrey Sachs, 1984. "Macroeconomic Policy Coordination among the Industrial Economies," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 15(1), pages 1-76.
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    8. Christopher Allsopp & David Vines, 1996. "Fiscal Policy and EMU," National Institute Economic Review, National Institute of Economic and Social Research, vol. 158(1), pages 91-107, October.
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    Cited by:

    1. Tamborini, Roberto & Tomaselli, Matteo, 2020. "The determinants of austerity in the European Union 2010–16," The North American Journal of Economics and Finance, Elsevier, vol. 51(C).
    2. Arne Heise, 2014. "Zwangsjacke Euro. Die Fehlkonstruktion des Europäischen Economic Governance-Systems," Wirtschaft und Gesellschaft - WuG, Kammer für Arbeiter und Angestellte für Wien, Abteilung Wirtschaftswissenschaft und Statistik, vol. 40(1), pages 17-31.
    3. Barrell, Ray & Pina, Alvaro M., 2004. "How important are automatic stabilisers in Europe? A stochastic simulation assessment," Economic Modelling, Elsevier, vol. 21(1), pages 1-35, January.
    4. AILINCA, Alina Georgeta, 2014. "Automatic Social Stabilizers What They Are And How They Function," Studii Financiare (Financial Studies), Centre of Financial and Monetary Research "Victor Slavescu", vol. 18(3), pages 45-57.
    5. Mr. Roel M. W. J. Beetsma & Mr. Xavier Debrun & Mr. Franc Klaassen, 2001. "Is Fiscal Policy Coordination in EMU Desirable?," IMF Working Papers 2001/178, International Monetary Fund.
    6. William Mitchell, 2015. "Eurozone Dystopia," Books, Edward Elgar Publishing, number 16478.
    7. Jorg Bibow, 2003. "On the 'burden' of German unification," Banca Nazionale del Lavoro Quarterly Review, Banca Nazionale del Lavoro, vol. 56(225), pages 137-169.
    8. Bernhard Winkler, 1999. "Co-ordinating Stability: Some Remarks on the Roles of Monetary and Fiscal Policy under EMU," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 26(3), pages 287-295, September.
    9. Issing, Otmar, 2001. "The Single Monetary Policy of the European Central Bank: One Size Fits All," International Finance, Wiley Blackwell, vol. 4(3), pages 441-462, Winter.
    10. Jorg Bibow, 2001. "Making EMU Work: Some lessons from the 1990s," International Review of Applied Economics, Taylor & Francis Journals, vol. 15(3), pages 233-259.
    11. Michael J. Artis & Marco Buti, 2000. "‘Close‐to‐Balance or in Surplus’: A Policy‐Maker's Guide to the Implementation of the Stability and Growth Pact," Journal of Common Market Studies, Wiley Blackwell, vol. 38(4), pages 563-591, November.
    12. Jörg Bibow, 2001. "On the 'Burden' of German Unification: The Economic Consequences of Messrs. Waigel and Tietmeyer," Macroeconomics 0106004, University Library of Munich, Germany.
    13. Asdrubali, Pierfederico & Kim, Soyoung, 2004. "Dynamic risksharing in the United States and Europe," Journal of Monetary Economics, Elsevier, vol. 51(4), pages 809-836, May.
    14. Dominique Bureau, 1998. "Pacte de stabilité, crédibilité et stabilisation dans l'union monétaire européenne," Économie et Prévision, Programme National Persée, vol. 132(1), pages 49-57.
    15. Luca Onorante, 2006. "Interaction of Fiscal Policies on the Euro Area: How Much Pressure on the ECB?," Economics Working Papers ECO2006/9, European University Institute.
    16. Ray Barrell & Ian Hurst & Álvaro Pina, 2002. "Fiscal Targets, Automatic Stabilisers and their Effects on Output," Working Papers Department of Economics 2002/05, ISEG - Lisbon School of Economics and Management, Department of Economics, Universidade de Lisboa.
    17. William Mitchell, 2016. "Eurozone Groupthink and Denial on a Grand Scale," World Economic Review, World Economics Association, vol. 2016(7), pages 43-55, July.
    18. Xavier Debrun, 2000. "Fiscal Rules in a Monetary Union: A Short-Run Analysis," Open Economies Review, Springer, vol. 11(4), pages 323-358, October.
    19. Nazaré Costa Cabral, 2016. "Which Budgetary Union for the E(M)U?," Journal of Common Market Studies, Wiley Blackwell, vol. 54(6), pages 1280-1295, November.

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    More about this item

    Keywords

    Fiscal Policy; Public Investment; Monetary Union; Maastricht Treaty; Automatic Stabilizer;
    All these keywords.

    JEL classification:

    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • F0 - International Economics - - General

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