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When Keynes goes to Brussels : a new fiscal rule for the EMU : is it desirable ?

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  • Francesco Saraceno

    (OFCE - Observatoire français des conjonctures économiques (Sciences Po) - Sciences Po - 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 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, 2017. "When Keynes goes to Brussels : a new fiscal rule for the EMU : is it desirable ?," SciencePo Working papers Main hal-03389109, HAL.
    • Handle: RePEc:hal:spmain:hal-03389109
    Note: View the original document on HAL open archive server: https://hal-sciencespo.archives-ouvertes.fr/hal-03389109
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    Cited by:

    1. Céline Antonin & Mattia Guerini & Mauro Napoletano & Francesco Vona, 2019. "Italy : escaping the high-debt and low-growth trap," Documents de Travail de l'OFCE 2019-07, Observatoire Francais des Conjonctures Economiques (OFCE).
    2. Francesco Saraceno, 2022. "Here to Stay? The Return of Fiscal Policy and Challenges for the EU Governance," Review of Economics and Institutions, Università di Perugia, vol. 13(1-2).

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