Fiscal policy in the euro area – greater focus on the economic cycle and closer coordination between member states

A countercyclical fiscal policy stabilises the economy in times of crisis. However, due to national constraints – caused by excessive debt levels for example – euro area countries consolidated their public finances overall during the debt crisis. As a result, fiscal policy was pro-cyclical and made the crisis worse. Times have changed since then, though, and a more expansionary policy seems possible.

Fiscal policy measures generate effects that travel across national borders via different channels, therefore greater coordination between euro area countries is desirable. This would increase the punch of European fiscal policy.

Fiscal policy in the euro area – greater focus on the economic cycle and closer coordination between member states