A Central Fiscal Stabilization Capacity for the Euro Area

Author/Editor:

Nathaniel G Arnold ; Bergljot B Barkbu ; H. Elif Ture ; Hou Wang ; Jiaxiong Yao

Publication Date:

March 26, 2018

Electronic Access:

Free Full Text. Use the free Adobe Acrobat Reader to view this PDF file

Summary:

This note outlines a concrete proposal for a euro area central fiscal capacity (CFC) that could help smooth both country-specific and common shocks. Specifically, it proposes a macroeconomic stabilization fund financed by annual contributions from countries that are used to build up assets in good times and make transfers to countries in bad times, as well as a borrowing capacity in case an exceptionally large shock exhausts the fund’s assets. To address moral hazard risks, transfers from the CFC—beyond a country’s own net contributions—would be conditional on compliance with the EU fiscal rules. The note also discusses several features aimed at avoiding permanent transfers between countries and making the CFC function as automatically as possible—to limit the scope for disputes over its operation—both of which are important points to make it politically acceptable.

Series:

Staff Discussion Notes No. 18/03

Subject:

English

Publication Date:

March 26, 2018

ISBN/ISSN:

9781484348178/2221-030X

Stock No:

SDNEA2018003

Price:

$10.00 (Academic Rate:$10.00)

Format:

Paper

Pages:

57

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