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Options for a Euro-area fiscal capacity

Author

Listed:
  • Jean Pisani-Ferry
  • Erkki Vihriälä
  • Guntram B. Wolff

Abstract

Europe has responded to the crisis with strengthened budgetary and macroeconomic surveillance, the creation of the European Stability Mechanism, liquidity provisioning by resilient economies and the European Central Bank and a process towards a banking union. However, a monetary union requires some form of budget for fiscal stabilisation in case of shocks, and as a backstop to the banking union. This paper compares four quantitatively different schemes of fiscal stabilisation and proposes a new scheme based on GDP-indexed bonds. The options considered are - (i) A federal budget with unemployment and corporate taxes shifted to euro-area level; (ii) a support scheme based on deviations from potential output;(iii) an insurance scheme via which governments would issue bonds indexed to GDP, and (iv) a scheme in which access to jointly guaranteed borrowing is combined with gradual withdrawal of fiscal sovereignty. Our comparison is based on strong assumptions. We carry out a preliminary, limited simulation of how the debt-to-GDP ratio would have developed between 2008-14 under the four schemes for Greece, Ireland, Portugal, Spain and an ‘average’ country.The schemes have varying implications in each case for debt sustainability.

Suggested Citation

  • Jean Pisani-Ferry & Erkki Vihriälä & Guntram B. Wolff, 2013. "Options for a Euro-area fiscal capacity," Policy Contributions 765, Bruegel.
  • Handle: RePEc:bre:polcon:765
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    Cited by:

    1. Fritz Breuss, 2012. "Towards a New EMU," WIFO Working Papers 447, WIFO.
    2. Jorg Bibow, 2013. "Lost at Sea: The Euro Needs a Euro Treasury," Economics Working Paper Archive wp_780, Levy Economics Institute.
    3. Beblavý, Miroslav & Marconi, Gabriele & Maselli,Ilaria, 2015. "A European Unemployment Benefits Scheme: The rationale and the challenges ahead," CEPS Papers 10952, Centre for European Policy Studies.
    4. Mario Sarcinelli, 2013. "L'unione bancaria europea e la stabilizzazione dell'Eurozona," Moneta e Credito, Economia civile, vol. 66(261), pages 7-42.
    5. Zeilbeck, Severin, 2015. "An investment initiative for fiscally constrained EU member states: The role of synergetic financial instruments," IPE Working Papers 58/2015, Berlin School of Economics and Law, Institute for International Political Economy (IPE).
    6. Beblavý, Miroslav & Lenaerts, Karolien & Maselli, Ilaria, 2017. "Design of a European Unemployment Benefit Scheme," CEPS Papers 12263, Centre for European Policy Studies.
    7. László Andor, 2016. "Towards shared unemployment insurance in the euro area," IZA Journal of European Labor Studies, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 5(1), pages 1-15, December.
    8. Nicolas Carnot & Magdalena Kizior & Gilles Mourre, 2017. "Fiscal stabilisation in the Euro-Area: A simulation exercise," Working Papers CEB 17-025, ULB -- Universite Libre de Bruxelles.
    9. P. Butzen & S. Cheliout & H. Geeroms, 2014. "Lessons from the US for the institutional design of EMU," Economic Review, National Bank of Belgium, issue ii, pages 82-101, September.
    10. repec:cpn:umkeip:v:16:y:2017:i:4:p:413-432 is not listed on IDEAS
    11. Thirion, Gilles, 2017. "European Fiscal Union: Economic rationale and design challenges," CEPS Papers 12160, Centre for European Policy Studies.
    12. 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.
    13. Mario Sarcinelli, 2013. "The European Banking Union: Will It Be a True Union without Risk Sharing?," PSL Quarterly Review, Economia civile, vol. 66(265), pages 137-167.
    14. Beblavý, Miroslav & Lenaerts, Karolien, 2017. "Feasibility and Added Value of a European Unemployment Benefits Scheme," CEPS Papers 12230, Centre for European Policy Studies.
    15. Verstegen, Loes, 2017. "On fiscal and monetary integration in Europe," Other publications TiSEM 49f73a6c-d32d-4dff-b5ec-4, Tilburg University, School of Economics and Management.

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