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Fiscal policy in Mediterranean countries – developments, structures and implications for monetary policy

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  • Michael Sturm
  • François Gurtner

Abstract

Southern and eastern Mediterranean countries have many fiscal challenges in common with other emerging market and mature economies concerning deficit and debt reduction and the maintenance of fiscal discipline. However, most countries in the region also face some specific fiscal issues, such as relatively high public debt, dependence on some form or another of donor dependence or concessional financing, high budgetary exposure to fluctuations in hydrocarbon prices, high defence expenditure and weak tax bases. Against this background, this paper reviews fiscal developments and fiscal policy issues in the ten countries that are participants or observers in the EU’s Barcelona process. The main focus is on the implications of these developments and issues for macroeconomic stability, given that countries in the region have made considerable progress in terms of macroeconomic stabilisation over the last two decades, which is reflected in particular in lower inflation rates. The analysis distinguishes between non-oil-producing and oil-producing countries in the region, as they exhibit different fiscal features and are confronted with different challenges. In the case of non-oil-producing countries, the key challenges stem from high deficits and debt levels, including implicit and contingent liabilities, notwithstanding some progress in fiscal consolidation in most of these countries over the last years. In the case of oil-producing countries, whose fiscal situation has significantly improved in recent years in the wake of high oil prices, the key challenges for fiscal management stem from the heavy reliance on an exhaustible source of revenues and a large exposure to fluctuations in international hydrocarbon prices. A shock originating from – or being transmitted via and exacerbated by – the fiscal sector appears to be the single most important macroeconomic risk in many countries.

Suggested Citation

  • Michael Sturm & François Gurtner, 2007. "Fiscal policy in Mediterranean countries – developments, structures and implications for monetary policy," Occasional Paper Series 69, European Central Bank.
  • Handle: RePEc:ecb:ecbops:20070069
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    Cited by:

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    3. Filippo Di Mauro & Katrin Forster, "undated". "Globalisation and the competitiveness of the Euro area," Working Papers 5, Department of the Treasury, Ministry of the Economy and of Finance.
    4. Irina Bunda, 2007. "The Changing Role of the Exchange Rate in a Globalised Economy," Post-Print halshs-00372820, HAL.
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    7. Gómez-Salvador, Ramón & Leiner-Killinger, Nadine, 2008. "An analysis of youth unemployment in the euro area," Occasional Paper Series 89, European Central Bank.
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    9. Cappiello, Lorenzo & Ferrucci, Gianluigi, 2008. "The sustainability of China's exchange rate policy and capital account liberalisation," Occasional Paper Series 82, European Central Bank.
    10. Mayerlen, Frank & Sola, Pierre & Be Duc, Louis, 2008. "The monetary presentation of the euro area balance of payments," Occasional Paper Series 96, European Central Bank.
    11. Bracke, Thierry & Bussière, Matthieu & Fidora, Michael & Straub, Roland, 2008. "A framework for assessing global imbalances," Occasional Paper Series 78, European Central Bank.
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    13. Poloni, Paolo & Agresti, Anna Maria & Baudino, Patrizia, 2008. "The ECB and IMF indicators for the macro-prudential analysis of the banking sector: a comparison of the two approaches," Occasional Paper Series 99, European Central Bank.
    14. Blattner, Tobias & Catenaro, Marco & Ehrmann, Michael & Strauch, Rolf & Turunen, Jarkko, 2008. "The predictability of monetary policy," Occasional Paper Series 83, European Central Bank.
    15. Moutot, Philippe & Jung, Alexander & Mongelli, Francesco Paolo, 2008. "The working of the eurosystem: monetary policy preparations and decision-making - selected issues," Occasional Paper Series 79, European Central Bank.
    16. Fidora, Michael & Beck, Roland, 2008. "The impact of sovereign wealth funds on global financial markets," Occasional Paper Series 91, European Central Bank.
    17. Morgese Borys, Magdalena & Polgár, Éva Katalin & Zlate, Andrei, 2008. "Real convergence and the determinants of growth in EU candidate and potential candidate countries: a panel data approach," Occasional Paper Series 86, European Central Bank.
    18. Winkler, Adalbert & Backé, Peter & Geis, André & Zumer, Tina & Bracke, Thierry & Habib, Maurizio Michael & Polgár, Éva Katalin & Chmielewski, Tomasz & Gardó, Sándor & de Lannoy, Anthony & Móré, Csaba , 2008. "Financial stability challenges in candidate countries managing the transition to deeper and more market-oriented financial systems," Occasional Paper Series 95, European Central Bank.

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