Beyond the Fiscal Compact: How Well-Designed Eurobonds May Discipline Governments

Haan, de Jakob; Gilbert, Niels; Hessel, Jeroen; Verkaart, Silvie

doi:10.5771/1610-7780-2012-3-304

Cited by 7 publications

(12 citation statements)

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“…As argued by de Haan et al (2012), it seems that European policymakers still have to learn the lesson from the sovereign crisis that debt levels are more important than deficits when it comes to the sustainability of the currency union. Furthermore, as pointed out by the ECB (2012), for the new rules to work it is crucial that the Commission uses its increased influence by taking a rigorous approach when assessing fiscal deficits and avoids politically influenced decisions.…”

Section: Changes Due To the Six-pack And The Fiscal Compactmentioning

confidence: 99%

“…Eurobonds are understood here as centrally issued, jointly guaranteed bonds for financing the euro area Member States' public debt. As discussed extensively by de Haan et al (2012), the most important objection against Eurobonds is that due to the fact that other euro area countries explicitly assume liability for other countries' debt, there is a moral hazard problem: countries lose the incentive to take care of their public finances. How then can Eurobonds be used an instrument to enhance fiscal discipline?…”

Section: Effective Instrumentmentioning

confidence: 99%

“…In the fiscal framework, much more attention will be given to the level of government debt. Access to Eurobonds will in principle be limited to countries meeting the requirement of a "debt ceiling" of 60% of GDP (de Haan et al, 2012). After Member States have brought back their debt ratio and do not exceed the debt ceiling, Member States retain the autonomy to determine the size and composition of their national budgets, within the boundaries set by the SGP.…”

Section: Effective Instrumentmentioning

confidence: 99%

“…In Sections 4 and 5 we outline and motivate our preferred solution (see also de Haan et al, 2012). Drawing on the analysis of Alesina and Tabellini (2007), our preferred long-term solution is to delegate the enforcement of European budgetary rules to a fully independent Budgetary Authority (Section 4).…”

Section: Introductionmentioning

confidence: 99%

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How to enforce fiscal discipline in EMU: A proposal

Haan

Gilbert²,

Hessel³

et al. 2013

Swiss J Economics Statistics

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Summary 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.

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Section: Changes Due To the Six-pack And The Fiscal Compactmentioning

confidence: 99%

Section: Effective Instrumentmentioning

confidence: 99%

Section: Effective Instrumentmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

See 2 more Smart Citations

How to enforce fiscal discipline in EMU: A proposal

Haan

Gilbert²,

Hessel³

et al. 2013

Swiss J Economics Statistics

Self Cite

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“…Indeed, several authors claim that the current arrangements provide a half-build house, and that long-term solutions require either a move towards a full political union (Glienicker Gruppe, 2013), or a credible return to the no-bailout clause so that markets can discipline governments (Von Hagen, 2013;Mody, 2013 These are either a monetary union with a higher degree of (explicit) risk sharing and more curtailed sovereignty, or a union of the type referred to by Buiter and Rahbari (2011) as: "you break it, you own it", where insolvency of a sovereign is settled between the taxpayers of that sovereign and its creditors, without any permanent financial support from any other nations taxpayers. In earlier work (De Haan et al, 2012; we have argued for Eurobonds, as this in our view is most desirable from a macro-economic viewpoint. It is, however, highly politically sensitive.…”

Section: The Road Aheadmentioning

confidence: 88%

Financial Factors in the Economic and Monetary Union

Hessel¹

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With this thesis a long-term desire has been fulfilled. Despite my deliberate choice to leave university and start working in the "real world" after I graduated, the idea to pursue a PhD always remained with me. I nevertheless shied away from openly starting such an ambitious grand project, and took a cautious approach instead. After a number of published and unpublished attempts over the years, the financial crisis and the sovereign debt crisis provided the inspiration for a clearly defined topic. Most economist will vividly remember this fascinating period, when conventional wisdoms were questioned and many new ideas took hold. In retrospect, writing a thesis certainly was not as difficult as I had feared, even though it took more time than I had hoped. Combining a thesis with daily policy work is a challenge, but doing this at DNB was a tremendous privilege. I took inspiration from the natural interaction between policy and research at DNB, and from the many colleagues that are familiar with and sympathetic to such a project. One particular example has been organizing a workshop on gross capital flows with Jolanda Peeters and Neeltje van Horen. The speech I wrote for that occasion contained several elements that form the heart of this thesis. I would also like to thank Job Swank, Paul Hilbers, Peter van Els, Christiaan Pattipeilohy and Saskia de Vries for their encouragement and for giving me time to-sometimes-prioritize research over policy. This thesis would not have been finished without the help of my supervisors, Jakob de Haan and Steven Brakman. Jakob's optimism and ability to have faith in people led to a natural assumption that I would manage and boosted my confidence. Steven has an eagle eye for texts and lines of reasoning that are not fully clear, which helped greatly to further improve my papers. I also want to express my gratitude to my co-authors. Leo de Haan and Jan Willem van den End for their work ethic and talent to channel ideas into a clear empirical strategy. Our cooperation made me realize that I was able to make valuable contributions to genuine research. Thanks also to Mariarosaria Comunale for her strong econometric skills and her continuous enthusiasm in tackling a topic that was quite unexplored and therefore not so clearly defined at the time. And finally Niels Gilbert for the countless fruitful discussions on EMU in our shared office, which have led to many policy notes, articles, papers and still unexplored ideas. Martin Admiraal and René Bierdrager provided excellent data assistance. Many thanks also go to the colleagues at the Raad van State (Council of State). Two secondments there helped me to look at EMU from other angles than just the economic one, and made me realize that the knowledge acquired with my academic work was also useful for policy advice to Dutch Parliament. In addition, I am grateful to the members of the assessment committee, Paul de Grauwe, Harry Garretsen and Kees Koedijk, for their willingness to read and comment on my manuscript. Finally, the contribution ...

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The EU Economic Governance Framework and the Issue of Debt

Repasi

2016

Governance and Security Issues of the European Union

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The Maastricht Treaty introduced the Economic and Monetary Union (EMU) based on a supranational pillar covering the monetary policy and on an intergovernmental pillar covering the coordination of entirely national economic and fiscal policies. This construction relies on the assumption that the disappearance of monetary policy measures to remedy excessive government deficits would discipline Member States' spending policies. In addition, the European level should only guarantee that Member States do not enter into excessive deficits and debts. The recent economic crisis unveiled the weaknesses of the Maastricht EMU construction and its underlying assumptions. Some Member States piled up debt in such an excessive manner that they were not able anymore to refinance themselves on the private markets. Reforms of the EMU's economic governance framework made in the aftermath of the peak of the crisis tightened the margin of public spending without addressing the issue of reducing excessive debt within the tightened limits of the reformed framework. In this context, the idea of establishing a European Redemption Fund (ERF) was put forward, into which all government debts amounting to above 60% of Gross Domestic Product (GDP) would be transferred, and where participating Member States would be obliged to redeem the transferred debt over a fixed period of time. This idea can be realised within the existing Treaty boundaries and would not violate the so-called "no bail-out" clause. It would put overindebted Member States in a position to comply effectively with the reformed economic governance framework.

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Beyond the Fiscal Compact: How Well-Designed Eurobonds May Discipline Governments

Abstract: The views expressed in this contribution do not necessarily reflect the views of De Nederlandsche Bank (DNB).

Cited by 7 publications

References 0 publications

How to enforce fiscal discipline in EMU: A proposal

How to enforce fiscal discipline in EMU: A proposal

Financial Factors in the Economic and Monetary Union

The EU Economic Governance Framework and the Issue of Debt

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