Fiscal Integration and Growth Stimulation in Europe

With the current sovereign debt crisis, the incompleteness of economic integration in the Economic and Monetary Union (EMU) has become patent, leading to an intense debate among academics and policy makers. Much of the debate concerns fiscal rules and austerity measures, both of which weigh on growt...

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Bibliographic Details
Published inIDEAS Working Paper Series from RePEc
Main Authors Drèze, Jacques, Durré, Alain, Carpantier, Jean-François
Format Paper
LanguageEnglish
Published St. Louis Federal Reserve Bank of St. Louis 01.01.2014
Subjects
Macroeconomics
Sovereign debt
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Summary:With the current sovereign debt crisis, the incompleteness of economic integration in the Economic and Monetary Union (EMU) has become patent, leading to an intense debate among academics and policy makers. Much of the debate concerns fiscal rules and austerity measures, both of which weigh on growth prospects. In this paper we look at the main structural shortcomings of EMU through the lens of general equilibrium theory. We address two issues (international sharing of macroeconomic risks and coordinated growth stimulation) which are at the heart of the sustainability of EMU. We propose : (A) a specific scheme for mutual insurance of macroeconomic risks ; (B) locating responsibility for demand policies at the EMU level, with ambitious investment programs (public, or fiscally-neutral private) as main instrument. JEL Classification : E24, E63, H63.
DOI:10.1016/j.jimonfin.2014.1