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When Keynes goes to Brussels : a New Fiscal Rule for the EMU ?

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  • Francesco Saraceno

    (OFCE Sciences PO)

Abstract

The Economic and Monetary Union (EMU) institutions are consistent with a New Consensus that emerged in the 1980s, limiting the role for macroeconomic (particularly fiscal) policy to short term stabilizations by means of rules. I will argue that the policy inertia induced by the Consensus may have played a role in the disappointing performance of EMU economies even before the crisis. The crisis of the Consensus, and the debate on secular stagnation, proved that Keynesian (and possibly) persistent excesses of savings over investment may hamper growth. This has put fiscal policy back to the center of the scene, and given the General Theory, at eighty, a second youth. I will argue therefore that the EMU fiscal rule should be amended to allow semi-permanent negative government savings. I will finally argue that a modified Golden Rule may serve this objective, and allow EU-wide policy coordination. This seems the only reasonable reform with some chances of being adopted by the EU divided policy makers.

Suggested Citation

  • Francesco Saraceno, 2016. "When Keynes goes to Brussels : a New Fiscal Rule for the EMU ?," Documents de Travail de l'OFCE 2016-32, Observatoire Francais des Conjonctures Economiques (OFCE).
  • Handle: RePEc:fce:doctra:1632
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    Cited by:

    1. Maria Savona, 2018. "Industrial policy for a Europeanindustrial renaissance. A few reflections," SPRU Working Paper Series 2018-07, SPRU - Science and Technology Policy Research, University of Sussex.

    More about this item

    Keywords

    Fiscal rules; fiscal policy; EMU; golden rule; secular stagnation; Keynes; policy mix; public investment;

    JEL classification:

    • B22 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925 - - - Macroeconomics
    • E02 - Macroeconomics and Monetary Economics - - General - - - Institutions and the Macroeconomy
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • E65 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Studies of Particular Policy Episodes

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