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Aspects of economic governance in the Euro area: restoring internal and external balances

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  • Christodoulakis, Nicos

Abstract

The Economic Governance for the Euro Area is envisaged to be both an overseeing framework that enables the timely identification of oncoming trouble, as well as a correction mechanism that puts an economy hit by major shocks back in order. The paper discusses the relevance of prevention and correction mechanisms, and finds that exclusively focusing fiscal policy on debt sustainability may be misleading for all and more harmful to the weaker economies in particular, unless internal and external imbalances are taken into account. The fiscal rule should be designed so as to be compatible with debt sustainability in the medium run but also allowed to respond to short term output and current account fluctuations. The micro-management of fiscal components with regards to political feasibility and social equity is also discussed.

Suggested Citation

  • Christodoulakis, Nicos, 2016. "Aspects of economic governance in the Euro area: restoring internal and external balances," LSE Research Online Documents on Economics 69169, London School of Economics and Political Science, LSE Library.
    • Handle: RePEc:ehl:lserod:69169
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    File URL: http://eprints.lse.ac.uk/69169/
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    References listed on IDEAS

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    1. Michal Andrle & John C Bluedorn & Luc Eyraud & Tidiane Kinda & Petya Koeva Brooks & Gerd Schwartz & Anke Weber, 2015. "Reforming Fiscal Governance in the European Union," IMF Staff Discussion Notes 15/9, International Monetary Fund.
    2. Mr. Anthony M Annett & Mr. Jörg Decressin & Mr. Michael Deppler, 2005. "Reforming the Stability and Growth Pact," IMF Policy Discussion Papers 2005/002, International Monetary Fund.
    3. Paul van den Noord & Björn Döhring & Sven Langedijk & João Nogueira Martins & Lucio Pench & Heliodoro Temprano-Arroyo & Michael Thiel, 2008. "The Evolution of Economic Governance in EMU," European Economy - Economic Papers 2008 - 2015 328, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
    4. Nicos Christodoulakis & Vassilis Sarantides, 2017. "External Asymmetries in the Euro Area and the Role of Foreign Direct Investment," The World Economy, Wiley Blackwell, vol. 40(2), pages 393-423, February.
    5. Belke, Ansgar, 2011. "The Euro Area Crisis Management Framework: Consequences for Convergence and Institutional Follow-ups," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 26, pages 672-704.
    6. Salvador Barrios & Per Iversen & Magdalena Lewandowska & Ralph Setzer, 2009. "Determinants of intra-euro area government bond spreads during the financial crisis," European Economy - Economic Papers 2008 - 2015 388, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
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    Cited by:

    1. Nicos Christodoulakis, 2019. "Greece and the Euro Area: The cost of weak institutions," DEOS Working Papers 1908, Athens University of Economics and Business.

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    More about this item

    Keywords

    euro area; public debt; fiscal policy; external balance;
    All these keywords.

    JEL classification:

    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy
    • F15 - International Economics - - Trade - - - Economic Integration
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt

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