by EPSC Strategic Notes*. Issue 20 23 November 2016
Monday 26 April 2021, by Carlos San Juan
EPSC Strategic Notes*. Towards a Positive Euro Area Fiscal Stance. Supporting public investments that increase economic growth
In certain circumstances, such as in prolonged periods of sub-par growth and monetary policy at the ‘zero lower bound’, there are good reasons to expand discretionary fiscal policy in order to support aggregate demand. The euro area currently meets these criteria, despite recent improvements in the economic outlook.
Some Member States have the fiscal space to engage in an expansionary fiscal policy but they do not use it due to limitations in the Stability and Growth Pact. Yet, there is a strong case for taking advantage of today’s very low funding costs to invest in the economy. The largest beneficiary of any fiscal expansion will be the Member State that undertakes it.
A positive fiscal stance is needed to support the accommodating monetary policy of the ECB, which currently bears the largest burden in terms of stabilising the euro area. The ECB has repeatedly warned of the increasing constraints it faces on the use of monetary tools, calling for a euro area fiscal counterpart to its monetary policy efforts. Positive Fiscal Stance Reinforces.
In combination with reforms and public investments supported by EU-level financial instruments, a positive fiscal stance will support the modernisation of the economy, as additional investments are channelled into strategic areas, opening up new markets and further developing existing ones.
*EPSC Strategic Notes are analytical papers on topics chosen by the President of the European Commission. They are produced by the European Political Strategy Centre (EPSC), the European Commission’s in-house think tank.