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Member States with Excessive Macroeconomic Imbalances

07-11-2019

This note provides an overview of the surveillance of the three Member States that have been assessed as experiencing excessive macroeconomic imbalances in the context of the 2019 European Semester cycle and according to the Macroeconomic Imbalance Procedure (MIP). Separate notes describe the state of play of the MIP implementation and the MIP procedure.

This note provides an overview of the surveillance of the three Member States that have been assessed as experiencing excessive macroeconomic imbalances in the context of the 2019 European Semester cycle and according to the Macroeconomic Imbalance Procedure (MIP). Separate notes describe the state of play of the MIP implementation and the MIP procedure.

How could the Stability and Growth Pact be simplified?

23-04-2018

The complexity of the SGP, which may have contributed to its limited effectiveness, reflects largely the conflict between the need to make the original SGP rules more stringent and the desire to allow flexibility with respect to various country circumstances. Now that the effects of the largest economic shock since the 1930s are fading away, a major simplification of the system could be achieved by removing some margins of flexibility, while possibly relaxing some of the SGP long-term parameters. ...

The complexity of the SGP, which may have contributed to its limited effectiveness, reflects largely the conflict between the need to make the original SGP rules more stringent and the desire to allow flexibility with respect to various country circumstances. Now that the effects of the largest economic shock since the 1930s are fading away, a major simplification of the system could be achieved by removing some margins of flexibility, while possibly relaxing some of the SGP long-term parameters. The coexistence of the MTO rule and the expenditure benchmark could also be reconsidered. A more radical solution would involve shifting to a single rule in which an “operational target” would respond to deviations of public debt from its long-term objective.

Autor externo

Carlo Cotterelli

Thematic Overview: Member States whose 2017 Draft Budgetary Plans Were Assessed To Be "At Risk of Non-Compliance" with the Stability and Growth Pact

29-05-2017

This briefing gives an overview of recent European Commission (COM) assessments of the budgetary situation of seven Member States (Portugal, Italy, Belgium, Cyprus, Lithuania, Slovenia and Finland) whose 2017 Draft Budgetary Plans (DBPs) were considered to be “at risk of non-compliance” with their obligations under the Stability and Growth Pact (SGP). This briefing may be updated pending new COM and Council decisions.

This briefing gives an overview of recent European Commission (COM) assessments of the budgetary situation of seven Member States (Portugal, Italy, Belgium, Cyprus, Lithuania, Slovenia and Finland) whose 2017 Draft Budgetary Plans (DBPs) were considered to be “at risk of non-compliance” with their obligations under the Stability and Growth Pact (SGP). This briefing may be updated pending new COM and Council decisions.

Servicing government debt: The impact of rising interest rates

02-03-2017

Interest rates are at historically low levels, both in the European Union and worldwide. For the euro area, a reason for low market interest rate levels is the accommodative monetary policy of the European Central Bank (ECB), which endeavours to increase inflation levels. Most of the time, central banks have to fight inflationary tendencies, but recently inflation was almost non-existent in the euro area, even leading to occasional dips into deflation. For some time, inflation was very far from the ...

Interest rates are at historically low levels, both in the European Union and worldwide. For the euro area, a reason for low market interest rate levels is the accommodative monetary policy of the European Central Bank (ECB), which endeavours to increase inflation levels. Most of the time, central banks have to fight inflationary tendencies, but recently inflation was almost non-existent in the euro area, even leading to occasional dips into deflation. For some time, inflation was very far from the ECB’s 'below but close to 2 %' aim. With clear indication that inflation is picking up, an end to the accommodative monetary policy may be in sight. Should this impact long-term interest rates for government bonds, then it might lead to detrimental effects for governments. An increase in interest rates is generally thought to harm public finances, as the servicing of debt becomes more onerous. This briefing shows that the increase in interest rates does not immediately and fully translate into higher costs for the state, as debt management strategies were put into place that will effectively reduce the short- and medium-term impact on the state’s coffers. However, in the long term, governments cannot escape the effects of market interest rate increases. It could lead to an increase in overall debt, and in certain cases might result in the neutralisation of past fiscal consolidation efforts. Please click here for the full publication in PDF format