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Surfing the Epidemic at the Zero Lower Bound: A Eurozone Fiscal Era?

In: New Challenges for the Eurozone Governance

Author

Listed:
  • Esteban Cruz-Hidalgo

    (University of Extremadura)

  • José Francisco Rangel-Preciado

    (University of Extremadura)

  • Francisco Manuel Parejo-Moruno

    (University of Extremadura)

Abstract

The Global Financial Crisis has diluted the previous consensus on monetary policy. The disconnection of the Interest Rate Policy for macroeconomic management motivated by the permanence of the zero lower bound has forced central banks to make incursions into unexplored terrain. Right at this historic moment, the epidemic shock has hit the economy, causing a drop in activity unprecedented since World War II. The monetary authorities are once again pushed to advance cooperation between the Central Bank and the Treasury. This is an especially difficult exercise in the Eurozone, where the different levels of resilience of the member states divert macroeconomic issues into the moral arena. An effective way to redirect the discussion for macroeconomic stabilization is to focus the debate on the development and strengthening of automatic stabilizers, which would dispel the discretionary image of public spending. That is the objective of this chapter, and against this background we immerse ourselves in the debates on Functional Finance in the context of World War II to present an automatic mechanism fixed to a clear policy rule.

Suggested Citation

  • Esteban Cruz-Hidalgo & José Francisco Rangel-Preciado & Francisco Manuel Parejo-Moruno, 2021. "Surfing the Epidemic at the Zero Lower Bound: A Eurozone Fiscal Era?," Springer Books, in: José Caetano & Isabel Vieira & António Caleiro (ed.), New Challenges for the Eurozone Governance, pages 137-151, Springer.
    • Handle: RePEc:spr:sprchp:978-3-030-62372-2_7
    DOI: 10.1007/978-3-030-62372-2_7
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