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The New Fiscal Rules - another round of austerity for Europe?

Author

Listed:
  • Christoph Paetz

    (Macroeconomic Policy Institute (IMK))

  • Sebastian Watzka

    (Macroeconomic Policy Institute (IMK))

Abstract

This policy brief presents the new EU fiscal rules with a focus on its core element, the so-called debt-sustainability-analysis (DSA). Our results suggest first that the new rules will lead to substantial fiscal consolidation in the next years albeit less severe than the austerity measures during the euro crisis, second that the new rules are far less beneficial for public investment than previously thought, and third that relatively minor changes to the DSA assumptions on ageing costs and interest rates can have important consequences for fiscal adjustment needs. However, even if some of the assumptions underlying the DSA methodology were to be changed, the additional fiscal space would still fall drastically short of the massive public investment needs of the EU's green transition. We conclude by making the case for an EU-wide debt-financed investment fund.

Suggested Citation

  • Christoph Paetz & Sebastian Watzka, 2024. "The New Fiscal Rules - another round of austerity for Europe?," IMK Policy Brief 176-2024, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
    • Handle: RePEc:imk:pbrief:176-2024
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    References listed on IDEAS

    as
    1. Olivier Blanchard, 2019. "Public Debt and Low Interest Rates," American Economic Review, American Economic Association, vol. 109(4), pages 1197-1229, April.
    2. Olivier J Blanchard, 2019. "Public Debt: Fiscal and Welfare Costs in a Time of Low Interest Rates," Policy Briefs PB19-2, Peterson Institute for International Economics.
    3. Bakker Age & Beetsma Roel & Buti Marco, 2024. "Investing in European Public Goods While Maintaining Fiscal Discipline at Home," Intereconomics: Review of European Economic Policy, Sciendo, vol. 59(2), pages 98-103, March.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    EU Fiscal rules; fiscal rules; debt-sustainability analysis; DSA; ageing costs;
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