6 Fiscal imbalances and output crises in Europe: will the fiscal compact help or hinder?
Authors: Graham Bird & Alex Mandilaras (2013) Journal of Economic Policy Reform, 16:1, 1-16
Tuesday 15 November 2016, by Carlos San Juan
The eurozone crisis has involved sharp output declines and has generated much
discussion about the appropriate design of macroeconomic policy both in terms of
dealing with the contemporary situation and minimising the risks of future crises.
Much of the debate surrounding the crisis has focused on fiscal policy. All but two
member states of the European Union have signed a draft treaty, the ‘fiscal compact’,
that seeks to eliminate structural fiscal deficits. This paper examines the relationship
between fiscal balances and output shortfalls amongst the eurozone countries allowing
for other factors. In the light of the findings it critically assesses the fiscal compact.