Volume 52, May/June 2017, Number 3 · pp. 125-131
Reflections on the Euro Area Fiscal Stance
This paper provides an historical account of the concept of the “euro area fiscal stance”, which was ultimately incorporated in the fiscal governance framework for the euro area with the Two-Pack regulations in 2013. It is argued that - while there may be no need to target a specific euro area fiscal stance in normal times, during which automatic stabilisers appear to be sufficient - there may be benefits from more discretionary fiscal action in times of deep and protracted swings in the cycle that can be unequivocally identified as such in real time. In line with the principles mentioned in the June 2015 Five Presidents’ Report, an area-wide fiscal capacity could be mandated to target the aggregate euro area fiscal stance. However, this area-wide fiscal instrument would have to be designed in a way that prevents permanent transfers and does not undermine countries’ incentives for sound fiscal and economic policies.
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