How to Stabilize the Euro Area Economy Without Creating Political Discord
Author | : Daniel Pérez del Prado |
Publisher | : |
Total Pages | : |
Release | : 2020 |
ISBN-10 | : OCLC:1299440697 |
ISBN-13 | : |
Rating | : 4/5 (97 Downloads) |
Book excerpt: This paper is spelling out a compromise proposal which on the one hand would provide the stabilization sought by proponents of a EUBS, but on the other hand addresses some of the most important concerns brought forward against a EUBS. Before going into the details of such a proposal, it is necessary to define the economic aim of such a scheme. The aim of the proposal discussed here is two-fold: It should first lead to cyclical stabilization both at a country-level as well as an EMU-wide level by influencing the pattern of national aggregate demand over time. Second, in the case of very large shocks to individual countries, it is supposed to soften the impact of this shock. What the proposal is not supposed (or able) to do, however, is to provide long-term convergence of incomes in different euro area countries. Our proposal borrows elements from a number of published proposals, among others those from the CEPS (Beblavý and Lenaerts, 2017) and the Italian treasury (Ministero dell'Economia e delle Finanze, August 2016, September 2016a, September 2016b). We believe, however, that the combination of the specific details is new and maximise the stabilization ability while minimizing concerns among euro area member states. Especially, our system has significant elements of self-insurance, by which countries are forced to make savings in good times for the case of a severe down-turn, combined with elements of joint insurance (or solidarity), by which countries especially hard hit by a crisis get support from a commonly financed fund.