Directorate-General for Economic and Financial Affairs

About: Directorate-General for Economic and Financial Affairs is a government organization based out in Brussels, Belgium. It is known for research contribution in the topics: Fiscal policy & European union. The organization has 80 authors who have published 145 publications receiving 4262 citations. The organization is also known as: ECFIN & GD ECFIN.

Fiscal Policy in the EU in the Crisis: A Model-Based Approach

Abstract: This paper uses a multi region DSGE model with collateral constrained households and residential investment to examine the effectiveness of fiscal policy stimulus measures in a credit crisis. The paper explores alternative scenarios which differ by the type of budgetary measure, its length, the degree of monetary accommodation and the level of international coordination. In particular we provide estimates for New EU Member States where we take into account two aspects. First, debt denomination in foreign currency and second, higher nominal interest rates, which makes it less likely that the Central Bank is restricted by the zero bound and will consequently not accommodate a fiscal stimulus. We also compare our results to other recent results obtained in the literature on fiscal policy which generally do not consider credit constrained households.

Sluggish Growth and the SGP Fiscal Rule: Model Simulations

Abstract: In the last decade, many OECD countries have experienced with budgetary rules in order to help restore or safeguard fiscal sustainability. The most prominent examples are the USA with the 1985 Balanced Budget and Emergency Deficit Control Act (Gramm- Rudman Act) which was relaxed and renamed in the 1990 Budget Enforcement Act (BEA) introducing caps on discretionary spending. The caps could be exceeded in the event of “emergencies”. In the end most of its provisions elapsed in September 2002, without being extended or replaced.4 In the United Kingdom, two fiscal rules were set out in 1997: the so-called “golden rule”, which states that over the cycle current outlays, including the consumption of fixed capital should not be financed by borrowing; and a debt rule, or “sustainability investment rule”, stipulating that over the cycle the ratio of net debt to GDP should not exceed a prudent level, defined for the time being as 40 per cent. Several other OECD countries have adopted new rules since the 1990s (e.g. New Zealand and Switzerland with its debt brake — “Schuldenbremse”)

Government Fiscal and Real Economy Responses to the Crises: Automatic Stabilisers Versus Automatic Stabilisation

Abstract: This paper looks at the discretionary fiscal and real economy support measures introduced by EMU Member States in response to the crises. The analyses build on a data base assembled by the Commission on individual crises response measures with a view to survey the implementation of the European Economic Recovery Programme (EERP). The paper first provides a broad overview of the types of crises-related measures taken, including broad estimates of their budgetary dimension. On this basis it appears that on an aggregate level, the discretionary support has been in line with agreed principles of being timely, temporary and targeted. Member States with restricted fiscal space has overall taken a more restrictive stance than those with more room of manoeuvre. The paper then looks at how these discretionary measures complement the "automatic" budget stabilisation. It appears that, in budgetary terms, about half of the discretionary measures add to the areas already covered by automatic stabilisers while the other half address other areas such as investments, industrial sectors and vulnerable groups particularly hit by the crises. The overall experience may suggest that it has been helpful with agreed ex-ante principles for how discretionary stimuli should be provided and that the provision of discretionary stimulus under such conditionality can work to strengthen the budgetary stabilisation capacity in a flexible way.

Scoreboard for the Surveillance of Macroeconomic Imbalances in the European Union

Abstract: This chapter focuses on tools to counter macro-economic imbalances in the EU. The economic and financial crises have revealed the limits of the original EMU surveillance tools. To prevent and correct macro-economic balances, the Macroeconomic Imbalance Procedure (MIP) was adopted. In this chapter, the authors present an overview of the MIP, its Alert Mechanism, and the rationale behind the indicators. The scoreboard is included in the yearly Alert Mechanism Report (AMR), which serves, inter alia, as a basis for the Commission to draw a list of Member States that are subject for an in-depth review. The authors notice that the number of countries that are in the list has not decreased over the years because of external sustainability issues, export performance and competitiveness, private sector indebtedness, and housing and asset markets issues. Yet, there have been improvements in terms of deficits, gains of price and non-price competitiveness, and the export performance is more homogeneous. Private debt stocks persist and unemployment seems to have increased.

Government Strength and Financial Reforms

Abstract: Are stronger governments more effective in delivering reforms? This paper addresses the question by looking at the relationship between government characteristics and structural adjustments in the financial sector. Since the relative importance of banks and capital markets has been shown to depend on the underlying economic structure, changes in the latter should affect the former accordingly. Using panel datasets covering 94 countries over 35 years, we show that they do and that governments play a key role in facilitating this adjustment process. Stronger governments, captured by different measures of government effectiveness, are indeed associated with quicker convergence towards equilibrium in the financial structure and with swifter adjustments when changes in the underlying economic structure occur. In the absence of comparable indicators of financial reforms across countries over time, this can be considered a suitable proxy for legislative activity in the domain of financial regulation.