The Identification of Fiscal and Macroeconomic Imbalances - Unexploited Synergies under the Strengthened EU Governance Framework

42 Pages Posted: 20 Nov 2014

See all articles by Christophe Kamps

Christophe Kamps

European Central Bank (ECB)

Roberta De Stefani

European Central Bank (ECB)

Nadine Leiner-Killinger

European Central Bank (ECB)

Rasmus Rueffer

European Central Bank (ECB)

David Sondermann

European Central Bank (ECB)

Date Written: September 19, 2014

Abstract

In the light of the lessons learned from the euro area sovereign debt crisis, the EU fiscal and macroeconomic governance framework was overhauled in 2011. Against this background, this paper analyses whether the broadened surveillance of fiscal and macroeconomic indicators under the strengthened governance framework would have facilitated the identification of emerging imbalances, had it been in place before the crisis. The findings suggest that the strengthened governance framework would have given earlier signals about emerging excessive fiscal and macroeconomic imbalances. Euro area countries thus would have been obliged to take preventive and corrective action at an earlier stage, provided that the stricter rules had been effectively implemented. At the same time, the paper concludes that the increased reliance of the EU fiscal governance framework on unobservable magnitudes such as the structural budget balance, which are difficult to measure in real time, will continue to impede the timely identification of underlying fiscal imbalances. It is suggested that the new macroeconomic imbalance procedure could have given earlier indications about the emergence of excessive macroeconomic imbalances, which in turn posed risks for fiscal sustainability. Looking forward, these preliminary findings suggest possible synergies between the, until now largely unrelated, fiscal and macroeconomic governance frameworks.

Keywords: Stability and Growth Pact, Macroeconomic Imbalance Procedure, structural balance, real-time potential output estimates

JEL Classification: H3, H6, E02, E61

Suggested Citation

Kamps, Christophe and De Stefani, Roberta and Leiner-Killinger, Nadine and Rueffer, Rasmus and Sondermann, David, The Identification of Fiscal and Macroeconomic Imbalances - Unexploited Synergies under the Strengthened EU Governance Framework (September 19, 2014). ECB Occasional Paper No. 157. Available at SSRN: https://ssrn.com/abstract=2498536

Christophe Kamps (Contact Author)

European Central Bank (ECB) ( email )

Sonnemannstrasse 20
D-60314 Frankfurt am Main
Germany

HOME PAGE: http://https://www.ecb.europa.eu/pub/research/authors/profiles/christophe-kamps.en.html

Roberta De Stefani

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Nadine Leiner-Killinger

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Rasmus Rueffer

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany
+49 69 1344 7087 (Phone)
+49 69 1344 6353 (Fax)

David Sondermann

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

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