Abstract
Abstract. Fiscal policy in the Euro area has been dominated by austerity measures implemented under the institutional setting of the 'reformed' stability and growth pact, and the even stricter 'fiscal compact' for some years. Since mid-2014 calls for a more expansionary fiscal policy to overcome the economic crisis have become more frequent. The EU-Commission in this spirit has launched the Juncker-Plan to stimulate (public) investment and is using a less strict interpretation of the Stability and Growth Pact in order to provide more fiscal leeway for countries under unfavourable economic circumstances. This paper argues that these steps do not go far enough and that indeed a truly expansionary fiscal policy in the dimension of two to three per cent of Euro area GDP for a few years is possible even within the existing institutional framework. Special emphasis is put on the method of cyclical adjustment employed by the European Commission in order to assess member states’ fiscal position and effort as well as on ways to increase public investment. It is demonstrated that even in the existing framework the leeway for a macroeconomically and socially more sensible fiscal policy using the interpretational leeway inherent in the rules could be quite substantial.
Keywords. Fiscal policy, Austerity, Cyclical adjustment of public finances, Euro area.
JEL. E61, E62, E65, H62, H63.
References
Andrade, J.S., & Duarte, A.P. (2014). Output-gaps in the PIIGS Economies: An Ingredient of a Greek Tragedy.” Estudos do GEMF No. 06/2014, Coimbra: Faculdade de Economia da Universidade de Coimbra Grupo de Estudos Monetários e Financeiros (GEMF). [Retrieved from].
Arestis, P. (2011). Fiscal policy is still an effective instrument of macroeconomic policy. Panoeconomicus, 6(2), 143-156. doi. 10.2298/PAN1102143A
Arestis, P., & Sawyer, M. (2003). Reinventing fiscal policy, Journal of Post Keynesian Economics, 26(1), 3-25. doi. 10.1080/01603477.2003.11051388
Barbiero, F., & Darvas, Z. (2014). In Sickness and in Health: Protecting and Supporting Public Investment in Europe, Bruegel Policy Contribution 02/2014. [Retrieved from].
Blanchard, O., & Giavazzi, F. (2004). Improving the SGP through a proper accounting of public investment. CEPR Discussion Papers, No. 4220. [Retrieved from].
Blanchard, O., & Leigh, D. (2013). Growth Forecast Errors and Fiscal Multipliers. IMF Working Paper, No. 13/1, Washington D.C.
Blyth, M. (2013). Austerity. The history of a dangerous idea. New York: Oxford University Press.
Bouthevillain, C., et al., (2009). Pros and cons of various fiscal measures to stimulate the economy. Banco de Espana Economic Bulletin, July 2009, 123-144. [Retrieved from].
Creel, J.H.E., & Plane, M. (2011). Petit précis de politique budgétaire par tous les temps. Les multiplicateurs budgétaires au cours du cycle. Revue de l'OFCE, 116(1), 61-88. doi. 10.3917/reof.116.0061
D’Auria, F., Cécile, D., Havik, K., McMorrow, K., Planas, C., Raciborski, R., Röger, W., & Rossi, A. (2010). The Production Function Methodology for Calculating Potential Growth Rates and Output Gaps. European Commission, Economic Papers No. 420. [Retrieved from].
Draghi, M. (2014). Unemployment in the euro area, Speech by Mario Draghi, President of the ECB.” Annual central bank symposium in Jackson Hole, 22 August 2014. [Retrieved from].
Dunn, M., Akritidis, L., & Biedman, L. (2014). The impact of ESA 2010 on key indicators of the national accounts in Europe, Eurostat Review on National Accounts and Macroeconomic Indicators, 2/2014, 7-27.
Eschenbach, F., & Schuknecht, L. (2004). Budgetary risks from real estate and stock markets. Economic Policy, 19(39), 313-346. doi. 10.1111/j.1468-0327.2004.00125.x
European Central Bank, (2014). Economic and Monetary Developments: Part 5, Fiscal Developments. ECB Montly Bulletin, September: 84-94. [Retrieved from].
European Commission, (2008). Communication from the Commission to the European Council: A European Economic Recovery Plan, Brussels, 26.11.2008 COM(2008) 800 final. [Retrieved from].
European Commission, (2010a). Annual macro-economic database (Ameco), May 2010.
European Commission, (2010b). Report on Public Finances in the EMU. in, European Economy No. 4, Brussels: European Commission, Directorate-General for Economic and Financial Affairs.
European Commission, (2012) Blueprint for deep and genuine Economic and Monetary Union – the launching a European debate, COM(2012) 777 final/2.
European Commission, (2013a). Report on Public Finances in the EMU” In European Economy No. 4, Brussels: European Commission, Directorate-General for Economic and Financial Affairs.
European Commission, (2013b). Annex to the communication from the commission: assessment of action taken by Spain, France, Malta, the Netherlands and Slovenia in response to the Council Recommendations of 21 June 2013 with a view to bringing an end to the situation of excessive government deficit, 19 November, COM(2013) 901 final/2, annex 1, Brussels.
European Commission, (2013c). The 2013 Stability and Convergence Programmes: An Overview, European Economy, Occasional Papers No. 152, June, Brussels: European Commission, Directorate-General for Economic and Financial Affairs.
European Commission, (2014a). Annual macro-economic database (Ameco), Spring 2014.
European Commission, (2014b). Annual macro-economic database (Ameco), Autumn 2014.
European Commission, (2014c). The 2014 Stability and Convergence Programmes: An Overview, European Economy, Occasional Papers No. 199, July, Brussels: European Commission, Directorate-General for Economic and Financial Affairs.
European Commission, (2014d). European Economic Forecast Spring 2014, European Economy, 3, Brussels: European Commission, Directorate-General for Economic and Financial Affairs.
European Commission, (2014e). Recommendation for a Council recommendation on Germany’s 2014 national reform programme and delivering a Council opinion on Germany’s 2014 stability programme {SWD(2014)406 final}, 2.6. COM(2014) 406 final, Brussels.
European Commission, (2014f). Communication from the Commission to the European Parliament, the Council, the European Central Bank, the Economic and Social Committee, the Committee of the Regions and the European Investment Bank;, An Investment Plan for Europe, Brussels, 26.11.2014, COM(2014) 903 final.
European Commission, (2015a). Annual macro-economic database (Ameco), autumn 2015.
European Commission, (2015b). Circa database on output gaps, autumn 2015.
European Commission, (2015c). Communication from the Commission to the European Parliament, the Council, the European Central Bank, the Economic and Social Committee, the Committee of the Regions and the European Investment Bank; Making the best use of the flexibility within the existing rules of the Stability and Growth Pact, Strasbourg, 13.1.2015 COM(2015) 12 final.
European Commission, (2015d). The 2015 Stability and Convergence Programmes: An Overview, European Economy, Institutional Paper No. 002, July, Brussels: European Commission, Directorate-General for Economic and Financial Affairs.
European Council, (2013). COUNCIL RECOMMENDATION with a view to bringing an end to the situation of an excessive government deficit in Spain, 20 June, 0560/1/13 REV 1 (en), Ecofin 478, Brussels.
European Council, (2014). European Council 26/27 June 2014 Conclusions, EUCO 79/14, CO EUR 4 CONCL 2, Brussels.
European Parliament, (2013). Resolution of 8 October 2013 on effects of budgetary constraints for regional and local authorities regarding the EU's Structural Funds expenditure in the Member States’, (2013/2042 (INI)), [Retrieved from].
Gechert, S. (2015). What fiscal policy is most effective? A meta-regression analysis. Oxford Economic Papers, 67(3), 553-580. doi. 10.1093/oep/gpv027
Hein, E., & Stockhammer, E. (2011). A post-Keynesian macroeconomic model of inflation, distribution and employment. in, Hein, E., & Stockhammer, E. (eds.): A Modern Guide to Keynesian Macroeconomics and Economic Policies, Cheltenham, Edward Elgar.
Hein, E., & Truger, A. (2014). Fiscal policy and rebalancing in the Euro area: A critique of the German debt brake from a Post-Keynesian perspective. Panoeconomicus 61(1), 21-38. doi. 10.2298/PAN1401021H
Hein, E., Truger, A., & van Treeck, T. (2012). The European financial and economic crisis: Alternative solutions from a (Post-)Keynesian perspective. in, Arestis, P., & Sawyer, M. The Euro Crisis, International Papers in Political Economy, Basingstoke: Palgrave Macmillan: 35-78.
Hemming, R., Kell, M., & Mahfouz, S. (2002). The Effectiveness of Fiscal Policy in Stimulating Economic Activity: A Review of the Literature. IMF Working Paper, No. 02/208, Washington D.C.
International Monetary Fund, (2012). World Economic Outlook October 2012.
Klär, E. (2013). Potential economic variables and actual economic policies in Europe. Intereconomics, 48(1-2), 33 - 40. doi. 10.1007/s10272-013-0442-2
Klär, E. (2014). Die Eurokrise im Spiegel der Potenzialschätzungen: Lehren für eine alternative Wirtschaftspolitik?. WiSo-Diskurs, April, Bonn: Friedrich-Ebert-Stiftung.
Larch, M., & Turrini, A. (2010). The cyclically adjusted budget balance in EU fiscal policymaking. Intereconomics 45(1), 48-60. doi. 10.1007/s10272-010-0324-9
Lavoie, M. (2009). Taming the new consensus: hysteresis and some other Post-Keynesian amendments. in, Fontana, G., & Setterfield, M. (eds.) Macroeconomics and Macroeconomic Pedagogy. Basingstoke, Palgrave Macmillan: 191-213.
Logeay, C.,e & Tober, S. (2006). Hysteresis and the NAIRU in the Euro Area. Scottish Journal of Political Economy, 53(4), 408-429. doi. 10.1111/j.1467-9485.2006.00387.x
Micossi, S., & Peirce, F. (2014). Flexibility clauses in the Stability and Growth Pact” No need for revision CEPS Policy Brief No. 319, 24 July.
Mourre, G., Astarita, C., & Princen, S. (2014). The cyclically-adjusted budget balance used in the EU fiscal framework. European Economy, Economic Papers 536: Brussels: European Commission.
Organisation for Economic Co-operation and Development, (2012). Restoring Public Finances. Update, Paris.
Observatoire Français des Conjonctures Économiques, Economic Council of the Labour Movement, Institut für Makroökonomie and Konjunkturforschung in der Hans-Böckler-Stiftung, (2013). Independent annual growth survey: first report, Brussels: Progressive Economy.
Prota, F., & Viesti, G. (2013). Which European investment clause?. Social Europe Journal, [Retrieved from].
Truger, A. (2013). Austerity in the euro area: the sad state of economic policy in Germany and the EU. European Journal of Economics and Economic Policies, Intervention, 10(2), 158-174. doi. 10.4337/ejeep.2013.02.02
Truger, A. (2015a). Austerity, cyclical adjustment and the remaining leeway for expansionary fiscal policies in the Euro area. Panoeconomicus, 62(2), 157-175. doi. 10.2298/PAN1502157T
Truger, A. (2015b). Implementing the Golden Rule for Public Investment in Europe. Safe-guarding Public Investment and Supporting the Recovery. Materialien zu Wirtschaft und Gesellschaft, Working Paper Reihe der AK Wien No. 138, Abteilung Wirtschaftswissenschaft und Statistik der Kammer für Arbeiter und Angestellte für Wien.
Truger, A. (2015c). Austerity, cyclical adjustment and the remaining leeway for expansionary fiscal policies within the current EU fiscal framework, IPE Working Paper, No. 50, Institute for International Political Economy Berlin.
Truger, A. (2016). The Golden Rule of Public Investment – a Necessary and Sufficient Reform of the EU Fiscal Framework? IMK Working Paper, No. 168, May, Düsseldorf: Institut für Makroökonomie und Konjunkturforschung in der Hans-Böckler-Stiftung.
Truger, A., & Will, H. (2013). The German ‘debt brake’: A shining example for European fiscal policy?. Revue de l’OFCE / Debates and Policies, The Euro Area in Crisis, 127, 155-188. doi. 10.3917/reof.127.0153
Zack, G., Poncela, P., Senra, E., & Sotelsek, D. (2014). Some New Results on the Estimation of Structural Budget Balance for Spain. Hacienda Publica Espanola / Review of Public Economics, 210(3), 11-31. doi. 10.7866/HPE-RPE.14.3.1
