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The euro area at the edge of the downturn: is there any room for manoeuvre?

Author

Listed:
  • Christophe Blot

    (OFCE - Observatoire français des conjonctures économiques (Sciences Po) - Sciences Po - Sciences Po)

  • Bruno Ducoudre

    (OFCE - Observatoire français des conjonctures économiques (Sciences Po) - Sciences Po - Sciences Po)

  • Eric Heyer

    (OFCE - Observatoire français des conjonctures économiques (Sciences Po) - Sciences Po - Sciences Po)

  • Raul Sampognaro

    (OFCE - Observatoire français des conjonctures économiques (Sciences Po) - Sciences Po - Sciences Po)

Abstract

This Policy brief presents the last OFCE forecasts on the euro area countries and addresses the issue of margins for manoeuvre to cope with an extended period of economic slowdown in the area. Will fiscal rules fetter policy reaction? We forecast a growth rate of 1.2%, but negative risks remain substantial. We then discuss public debt evolution and compute the fiscal policies necessary to reach a 60% public debt over GDP target in 2040. The fiscal consolidation appears unrealistic in some countries, questioning the credibility of this target. In addition, we investigate the (moderate) effect of interest rate on the fiscal consolidation requirement. Finally, the very notion of fiscal space will depend on the speed of adjustment of public debt and on the level of interest rates.

Suggested Citation

  • Christophe Blot & Bruno Ducoudre & Eric Heyer & Raul Sampognaro, 2019. "The euro area at the edge of the downturn: is there any room for manoeuvre?," SciencePo Working papers Main hal-03403598, HAL.
    • Handle: RePEc:hal:spmain:hal-03403598
    Note: View the original document on HAL open archive server: https://hal-sciencespo.archives-ouvertes.fr/hal-03403598
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