Nothing learned from the crisis? Some remarks on the Stability Programmes 2011-2014 of the Euro area governments
AbstractWe analyse the newly updated Stability Programmes of the Euro area governments by applying the simple accounting identity by which the financial balances of the government, the private sector and the foreign sector always sum to zero. While the focus of the old Stability and Growth Pact was solely on the government balance, the current euro crisis has shown that this narrow focus was wrong and that macroeconomic stability within the monetary union requires reducing imbalances between all three sectors of individual member states. While the need for overcoming these imbalances is now increasingly recognised by economists and policymakers, we argue that the projections for achieving stability in the current Stability Programmes are very likely too optimistic. We show that, individually, the Stability Programmes rely on optimistic assumptions about GDP growth; collectively, they require an improvement of the Euro area's current account with the rest of the world, the continuation of significant current account imbalances within the Euro area, and a steep drop of private balances in some countries. Based on some simple counterfactual simulations, we conclude that a symmetric effort at rebalancing current accounts would most likely require a slowdown of fiscal consolidation (in the current account surplus countries) but would be required to successfully address the euro area's macroeconomic challenges and thereby not only allow for consolidation in the medium term but also lead to the desired stability.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute in its series IMK Working Paper with number 11-2011.
Length: 33 pages
Date of creation: 2011
Date of revision:
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-05-15 (All new papers)
- NEP-CBA-2012-05-15 (Central Banking)
- NEP-EEC-2012-05-15 (European Economics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Till van Treeck & Silke Tober & Achim Truger & Michael Brecht, 2010. "Squaring the circle in Euroland? Some remarks on the Stability and Convergence Programmes 2010-2013," IMK Working Paper 3-2010, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
- Gregor Semieniuk & Till van Treeck & Achim Truger, 2011. "Reducing Economic Imbalances in the Euro Area: Some Remarks on the Current Stability Programs, 2011–14," Economics Working Paper Archive wp_694, Levy Economics Institute.
- Jörg Bibow, 2013. "Lost at Sea: The Euro Needs a Euro Treasury," IMK Studies 35-2013, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
- Hein, Eckhard & Truger, Achim, 2013. "Future fiscal and debt policies: Germany in the Context of the European Monetary Union," IPE Working Papers 24/2013, Berlin School of Economics and Law, Institute for International Political Economy (IPE).
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Sabine Nemitz).
If references are entirely missing, you can add them using this form.