Suchergebnisse

This thesis focuses on the consequences of European monetary integration and the associated coordination of fiscal policies. Initially, the euro appeared a resounding success. The global financial crisis of 2008/09 however hit the euro area hard and exposed severe macroeconomic imbalances within, and between, member states. To help understand the emergence of these imbalances, chapter 2 rewinds the clock to 1996, when, in anticipation of the introduction of the euro, interest rates started to sharply decline in many prospective Southern European member states. We show how falling rates sparked capital inflows, a domestic demand boom, and growth of the nontradable sector. Capital inflows did however not benefit the tradable sector, leading to a divergence between external debt and capacity to repay. Chapters 3 and 4 focus on fiscal policy coordination in EMU. In chapter 3, we highlight that the design of Europe's fiscal rules encourages strategic behavior. More specifically, the official forecasts used to judge compliance with the rules tend to be overly optimistic when the 3%-threshold threatens to bind. Chapter 4 shows that, despite such side effects, Eurozone governments do actively tighten their fiscal policy in response to fiscal recommendations. Finally, chapter 5 zooms in on the euro crisis and its aftermath. We show that, during 2009-2012, shocks to Spanish and Italian sovereign spreads induced sizable spillovers to almost all other euro area countries. Since the announcement of the ECB's Outright Monetary Transactions, such spillovers have largely disappeared, greatly enhancing the stability of the Eurozone as a whole.

Based on Inman's (1996) classification of successful fiscal policy rules, we argue that the Stability and Growth Pact suffers from two serious weaknesses: a politicized decision-making process and lack of effective instruments to enforce that Member States adjust their fiscal policies if needed. Although recent changes in the European Union's governance of national fiscal policy are considered to be an improvement, we argue that they do not address these shortcomings sufficiently. More independent enforcement is needed, and our preferred long-term solution would be to delegate the enforcement of European budgetary rules to a fully independent Budgetary Authority. Once the enforcement by this authority is well established and government debt-to-GDP ratios have declined towards 60%, fiscal discipline could be strengthened even further by introducing well-designed Eurobonds as the capstone of EMU. We propose centrally issued Eurobonds for the full public debt under the condition that Member States will no longer be allowed to independently raise funds in the money or capital markets. The independent Budgetary Authority only distributes funds to Member States if they have sustainable fiscal policies as defined under the SGP or if they properly implement a strictly monitored adjustment program.