The Performativity of Potential Output: Pro-Cyclicality and Path Dependency in Coordinating European Fiscal Policies

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in AbstractThis paper analyzes the performative impact of the European Commission's model for estimating 'potential output', which is used as a yardstick for measuring the 'structural budget balance' of EU countries and, hence, is crucial for coordinating European fiscal policies. In pre-crisis years, potential output estimates amplified the build-up of private debt, housing bubbles and macroeconomic imbalances. After the financial crisis, they were revised downwards, which increased fiscal consolidation pressures. By focusing on the euro area's economies during 1999-2014, we identify two performative aspects of the potential output model. First, the political implications of the model led to a procyclical feedback loop, reinforcing general economic developments. Second, the model has contributed to national lock-ins on path dependent debt trajectories, fueling 'structural polarization' between core and periphery.

Fiscal fault, financial fix? Capital Markets Union and the quest for macroeconomic stabilization in the Euro Area

“…‘Using the cognitive schemas at their disposal’, technocratic bricoleurs always ‘construct strategies of action based on pre-constructed ideational and political institutions’ (Carstensen, 2011: 147). Supposedly neutral ‘rational speculation’ based on ‘scientific procedures’ (Caramani, 2017: 62) is thus invariably coloured by the prevalent theoretical or policy consensus (Blyth and Matthijs, 2017; Braun, 2014; Heimberger and Kapeller, 2017). Considering that securitization and market-based finance had played a key role in the financial crisis, CMU would have been unlikely to emerge as a policy solution had it not been for the resilience of the pre-crisis paradigm among European technocrats that properly regulated financial markets tended towards efficiency (Mügge, 2013; Schmidt and Thatcher, 2013).…”

Sailing through Troubled Waters and towards ‘Someplace …’

“…As a consequence, the current EMU system has kept inflicting scars in the social fabric of several EU countries, starting from those that are caught in the austerity‐stagnation trap. This mechanism de facto polarizes the structural asymmetries that are at the root of the problem both at the national and European level (O'Dwyer, ; Heimberger and Kapeller, ). In the absence of any substantive and far‐reaching reform there are strong indications of path‐dependency, as signs of a new global economic slow‐down accumulated in the final months of 2018.…”