## wpiea2023149-print-pdf — Introduction

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### Background and objectives
- Since the global financial crisis (GFC), fiscal-monetary policy interactions (FMI) have become more prominent for macroeconomic stabilization in the euro area (EA).
- Paper objectives:
  - Assess whether an alternative policy mix could reduce inflation in the EA with better macroeconomic outcomes relative to the baseline.
  - Evaluate whether fiscal coordination in a currency union can alleviate macroeconomic tradeoffs of fiscal consolidation, accounting for country-specific conditions (size, fiscal space, financing).
- Assumptions: interactions do not undermine institutional independence of monetary or fiscal authorities; central bank ensures long-term price stability and fiscal authority ensures long-run fiscal solvency.

### Empirical approach and measures
- Monetary policy stance: difference between the real shadow rate (Krippner 2013) and the equilibrium (neutral) rate of interest; one-year-ahead inflation expectations from the Survey of Professional Forecasters used to deflate the nominal shadow rate. Equilibrium rates considered: Holstein, Laubach and Williams (HLW, 2017) and Arena et al. (2020).
- Fiscal stance: structural fiscal balance in percent of GDP. Positive stance = contractionary; negative stance = expansionary.
- Output gap: actual minus potential output (WEO desk estimates used; HP-filter and unemployment gap used for robustness).
- Inflation gap: realized HICP inflation minus EA target of 2 percent.

### Stylized facts on synchronization (2000–2021)
- Four distinct periods of fiscal-monetary synchronization:
  - Prior to the GFC: policies largely synchronized and stabilizing; fiscal policy somewhat procyclically loose.
  - During the GFC: both fiscal and monetary policy became countercyclically expansionary.
  - European Debt Crisis: strong divergence—monetary policy accommodative, aggregate fiscal policy strongly contractionary driven by high-debt countries.
  - Pandemic (2020-21): policies synchronized and loosened; subsequently inflation rose in 2021–2022.
- Heterogeneity across countries:
  - High-debt (HD) countries defined as public-debt-to-GDP ratios above 100 percent in 2022: Belgium, Cyprus, France, Spain, Greece, Italy, Portugal.
  - Greece public debt almost 180 percent of GDP in 2022; Estonia debt-to-GDP 18 percent of GDP in 2022.
- Fiscal support during 2022-23:
  - Averaged about 1¼ percent of GDP annually (Arregui and others, 2022).
  - Elsewhere text notes averaging more than 1½ percent of GDP in 2022-23 for fiscal support measures.

### VAR evidence on fiscal-monetary interactions
- Panel I-VAR (interaction-state dependent) results:
  - When monetary policy is on an easing path, an increase in fiscal spending of ½ pp of GDP cumulatively raises EA output by 1.7 pp after three years; when monetary policy is in a tightening mode the cumulative effect is about 1 pp after three years.
  - First-year government spending multipliers: 1.5 when policies are synchronized (loosening) versus 1.2 when not synchronized.
  - Cumulative government spending multiplier after three years: 1.7 (when synchronized) versus 1 (when not synchronized).
  - When monetary policy is tightening, government spending shocks are associated with an increase in the shadow rate (monetary policy offsets fiscal shock); when loosening, monetary policy reinforces fiscal stimulus.
  - Impact on inflation: initially similar and statistically insignificant; more sustained disinflation when monetary policy is in a tightening regime.

### Core contributions and intuition
- Fiscal and monetary policies pulling in the same direction improve stabilization, including in high-inflation/low-growth settings when monetary policy is unconstrained.
- Fiscal coordination among currency union members yields lower inflation, lower policy rates, and improved public debt dynamics when consolidation is shared.

### Model calibration and experiment design
- Models used:
  - Two-country SIGMA (Erceg and Linde).
  - IMF’s Flexible System of Global Models (FSGM).
- Two-country setup differentiates low-debt (LD) and high-debt (HD) groups. HD group: Belgium, Cyprus, France, Greece, Italy, Portugal, Spain.
- Baseline: IMF January 2023 World Economic Outlook (WEO) projections.
- Representative counterfactuals described:
  - EA-wide consolidation: 1 pp of GDP annually over 2023-2024, followed by 0.5 percent of GDP consolidation in 2025.
  - Calibrated Scenario 1: negative government consumption shocks of 1 percent of GDP in both 2023 and 2024, followed by 0.5 percent of GDP in 2025.
  - Scenario 2: same consolidation sized only in HD countries; LD countries do not consolidate.
- Fiscal multiplier and model differences:
  - Average output loss over average spending cut during the first two years: 0.5 for SIGMA and 0.6 for FSGM.
  - FSGM: Phillips curves strongly forward-looking (forward-looking term around 0.7).
  - SIGMA: Uses Kimball preferences, flattening the Phillips curve relatively.
- Capital expenditure channel: capital expenditures link to potential output via TFP growth; larger cuts to capital expenditures would imply lower near- and medium-term output and higher debt-to-GDP ratios.

### Scenario 1 — EA-wide uniform fiscal consolidation (baseline)
- Policy simulated: fiscal consolidation of 1 percent of GDP for two years and 0.5 percent of GDP in the third year (composition: entirely from a cut to government consumption in the SIGMA representation).
- Key outcomes (union-wide):
  - EA output: level lower by 0.6 to 0.8 pp in the first year; output effects insignificant by end-2025; output deviation relative to WEO baseline of -0.2 to 0.2 pp by end-2025.
  - Core inflation: lower by 0.15-0.25 pp in the first two years relative to the baseline (core inflation gap narrows by 0.15-0.25 pp in first two years).
  - Monetary policy / policy rate: endogenous policy rate over 2023-25 some 30 to 50 basis points lower relative to the baseline MP path; peak reduction of 30-70 basis points in the second year.
  - Public debt: debt-to-GDP ratios decline by up to 2 pp of GDP by end-2025 compared to the baseline.
  - SIGMA reported initial primary deficit narrowing less than one to one: 0.75 percent of GDP change in primary deficit reported.
- Interpretation: synchronized fiscal tightening across the EA reduces inflation while allowing a less-tight policy rate path, delivering macro benefits including lower borrowing costs and reduced financial fragmentation risks; near-term output costs are modest and unwind.

### Scenario 2 — Only the high-debt (HD) country consolidates
- Setup: HD countries (about half of EA output) consolidate while LD countries do not; SIGMA example: HD engages in 1 percent of GDP fiscal consolidation for two years and ½ pp in the third year.
- Outcomes and magnitudes:
  - EA inflation reduction: about 0.1-0.15 pp in the first two years—less than the uniform-consolidation baseline.
  - Output: small short-term output cost largely borne by HD group on impact but partially reverses within a year as HD real exchange rate becomes more competitive.
  - Public debt-to-GDP:
    - HD falls by 1-2 pp.
    - LD increases marginally by 0.01-0.05 pp.
  - Monetary policy reaction: endogenous MP response less accommodative than in Scenario 1; policy rate some 15-20 bp higher during 2023-25 relative to Scenario 1 because of lower fiscal consolidation at the union level.
  - To match EA-wide inflation reduction from Scenario 1, HD countries (which make up half the union) would need to double their fiscal effort, incurring larger immediate activity losses but faster debt reduction over three years.
- With EA-level commitment/incentive mechanisms that support HD during downswings and reduce fiscal fragmentation risks, HD consolidation can improve HD real exchange rate competitiveness and induce stronger HD growth after the first year; effects improve further if consolidation reduces HD risk premia.

### Scenario 3 — HD consolidation combined with risk premia reduction
- Empirical background: literature documents that risk premia increase with higher public debt ratios, sometimes nonlinearly.
- Calibration in the paper:
  - When HD reduces spending by 1 percent of GDP for 2 years, followed by 0.5 percent of GDP in the third year, the medium-term debt-to-GDP ratio declines by around 2.5 percentage points.
  - Scenario: HD risk premium declines by 12 bp for the first two years, and another 6 bp in the third year.
- Effects:
  - Lower risk premia support aggregate demand for the whole union to some extent.
  - HD group’s output loss is lower and debt-to-GDP ratio declines faster under the combined consolidation-plus-risk-premia scenario.

### Comparative model and heterogeneity findings
- SIGMA and FSGM produce broadly similar qualitative outcomes; magnitude differences reflect assumptions on fiscal composition, sacrifice ratio, and Phillips curve slope.
- Country-level FSGM notes:
  - Union-wide consolidation yields output loss narrowing over time, inflation and public debt reduction, and reduced fragmentation risks.
  - High-debt countries (e.g., Greece, Italy, Portugal) face slightly higher output costs of about 0.05-0.1 pp relative to low-debt countries (e.g., Germany and Netherlands), and show lower debt reduction over the three-year period compared to low-debt countries.
- Reported cross-country aggregate figure: 1.5 pp to 2 pp lower in both HD and LD countries by end-2025 (noted repeatedly in source).

### Policy implications and recommendations
- Leverage fiscal-monetary interactions to address high inflation: fiscal tightening that complements monetary tightening allows a lower policy-rate path and reduces inflation and public debt.
- Fiscal coordination matters in a currency union: explicit EA fiscal architectural reforms to promote fiscal coordination can reduce adverse spillovers and generate stronger responses to shocks.
- Burden-sharing mechanisms: commitment devices and EA-level incentives are important to avoid disproportionate short-term costs on high-debt members and to prevent market-forced, disruptive consolidations.
- Protect vulnerable groups: well-designed fiscal cuts should be accompanied by targeted support to the vulnerable to manage short-term distributional effects.
- Build fiscal buffers: adopt timely EU fiscal rules and build buffers during good times to reduce the risk that debt distress ties fiscal hands during downturns.

### Caveats and limitations
- Paper does not explicitly model differences in response lags between fiscal and monetary policy; recent episodes show faster movement of both policies and potentially faster transmission (steeper Phillips Curve), reducing timing mismatch concerns.
- Analysis abstracts from debates on passive vs. active monetary-fiscal regimes and assumes central bank primacy on price stability and fiscal primacy on long-run solvency.

*Source: wpiea2023149-print-pdf — Introduction (IMF Working Paper).*

### Introduction ...........................................................................................................

### wpiea2023149-print-pdf - Introduction ...........................................................................................................

### Major sections (from table of contents)
- Introduction (page 4)
- Stylized Facts (page 7)
- Conceptual Framework (page 11)
  - A single country setting (page 11)
  - A two-country setting (page 12)
- Model Calibration for the Euro Area (page 14)
- Scenario 1: all countries in the currency union consolidate (page 16)
- Scenario 2: Only the high debt country consolidates (page 18)
- Scenario 3: HD consolidation combined with risk premia reduction (page 18)
- Conclusions (page 20)
- Annex I. Policy Synchronization in Euro Area Countries (page 21)
- Annex II. FSGM Results for Uniform EA-l evel Fiscal Consolidation (page 22)
- References (page 23)

### Glossary (acronyms and abbreviations listed)
- BP – Basis point
- DSGE – Dynamic stochastic general equilibrium
- EA – Euro area
- FMI – fiscal monetary policy interaction
- FP – Fiscal policy
- FSGM – Flexible system of global models
- GFC – Global financial crisis
- GIRFs – Generalized impulse response functions
- HD – High debt
- HLW – Holstein, Laubach and Williams estimates of neutral rates
- LD – Low debt
- MP – Monetary policy
- PP – Percentage point
- WEO – World Economic Outlook
- VAR – Vector autoregression

### Structural mapping for ingestion
- Core analytical blocks:
  - Stylized Facts; Conceptual Framework (single- and two-country formulations); Model Calibration for the Euro Area; three Scenarios; Conclusions.
- Annexes provide:
  - Policy synchronization empirical/analytical material for Euro Area countries (Annex I).
  - FSGM experiment results for uniform Euro Area fiscal consolidation (Annex II).
- References section for source-level citations (page 23).

*Source: wpiea2023149-print-pdf - Introduction (IMF Working Paper table of contents and glossary).*

### Introduction

### Introduction

### Background and objectives
- Since the global financial crisis (GFC), fiscal-monetary policy interactions (FMI) have become more prominent for macroeconomic stabilization in the euro area (EA).
- The paper empirically investigates FMI in the EA over the past two decades and addresses two policy questions:
  - Could an alternative policy mix deliver inflation reduction in the EA with better macroeconomic outcomes relative to the baseline?
  - Given externalities in a currency union, could fiscal coordination approaches help alleviate macroeconomic tradeoffs of fiscal consolidation?
- The analysis considers (i) interaction of fiscal policies and EA monetary policy and (ii) cross-country fiscal policy interactions for a given monetary policy, with sensitivity to country-specific conditions (size, fiscal space, financing).
- Assumptions: interactions do not undermine institutional independence of monetary or fiscal authorities; central bank ensures long-term price stability and fiscal authority ensures long-run fiscal solvency.

### Empirical approach and measures
- Monetary policy stance: difference between the real shadow rate (Krippner 2013) and the equilibrium (neutral) rate of interest; one-year-ahead inflation expectations from the Survey of Professional Forecasters used to deflate the nominal shadow rate. Equilibrium rates considered: Holstein, Laubach and Williams (HLW, 2017) and Arena et al. (2020).
- Fiscal stance: structural fiscal balance in percent of GDP. Positive stance = contractionary; negative stance = expansionary.
- Output gap: actual minus potential output (WEO desk estimates used; HP-filter and unemployment gap used for robustness).
- Inflation gap: realized HICP inflation minus EA target of 2 percent.

### Stylized facts on synchronization (2000–2021)
- Four distinct periods of fiscal-monetary synchronization:
  - Prior to the GFC: policies largely synchronized and stabilizing; fiscal policy somewhat procyclically loose.
  - During the GFC: both fiscal and monetary policy became countercyclically expansionary.
  - European Debt Crisis: strong divergence—monetary policy accommodative, aggregate fiscal policy strongly contractionary driven by high-debt countries.
  - Pandemic (2020-21): policies synchronized and loosened; subsequently inflation rose in 2021–2022.
- Heterogeneity across countries: countries with higher debt experienced longer spells of policy asynchrony; high-debt (HD) countries defined as public-debt-to-GDP ratios above 100 percent in 2022 (Belgium, Cyprus, France, Spain, Greece, Italy, Portugal).
- Example cross-country extremes: Greece public debt almost 180 percent of GDP in 2022; Estonia debt-to-GDP 18 percent of GDP in 2022.
- Fiscal support during 2022-23 averaged about 1¼ percent of GDP annually (Arregui and others, 2022); elsewhere the text notes averaging more than 1½ percent of GDP in 2022-23 for fiscal support measures.

### VAR evidence on fiscal-monetary interactions
- Panel I-VAR (interaction-state dependent) results:
  - When monetary policy is on an easing path, an increase in fiscal spending of ½ pp of GDP cumulatively raises EA output by 1.7 pp after three years; when monetary policy is in a tightening mode the cumulative effect is about 1 pp after three years.
  - First-year government spending multipliers: 1.5 when policies are synchronized (loosening) versus 1.2 when not synchronized.
  - Cumulative government spending multiplier after three years: 1.7 (when synchronized) versus 1 (when not synchronized).
  - When monetary policy is tightening, government spending shocks are associated with an increase in the shadow rate (monetary policy offsets fiscal shock); when loosening, monetary policy reinforces fiscal stimulus.
  - Impact on inflation: initially similar and statistically insignificant; more sustained disinflation when monetary policy is in a tightening regime.

### Key contributions and intuition
- Demonstrates benefits of fiscal and monetary policies pulling in the same direction for stabilization, including in high-inflation/low-growth settings when monetary policy is unconstrained.
- Shows economic payoffs from more fiscal coordination among currency union members: lower inflation, lower policy rates, and improved public debt dynamics when fiscal consolidation is shared.

### Calibrated model scenarios and results
- Models used: two-country SIGMA (Erceg and Linde) and IMF’s Flexible System of Global Models (FSGM). Two-country setup differentiates low-debt (LD) and high-debt (HD) groups (HD group = Belgium, Cyprus, France, Greece, Italy, Portugal, Spain).
- Baseline: IMF January 2023 World Economic Outlook (WEO) projections.

Scenario specifications (as presented):
- Counterfactual EA-wide consolidation described in parts of the paper:
  - In one description: EA-wide fiscal consolidation of 1 pp of GDP annually over 2023-2024, followed by a 0.5 percent of GDP consolidation in 2025.
  - In the calibrated Scenario 1: negative government consumption shocks of 1 percent of GDP in both 2023 and 2024, followed by 0.5 percent of GDP in 2025 (this is presented as an unwinding of fiscal support averaging more than 1½ percent of GDP in 2022-23).
- Scenario 2: non-uniform consolidation where only HD countries consolidate (same amounts as Scenario 1); LD countries do not consolidate.

Average modeled outcomes (SIGMA and FSGM, Scenario 1—EA-wide consolidation):
- EA output:
  - Level lower by 0.6 to 0.8 pp in the first year.
  - Output effects insignificant by end-2025; output deviation relative to WEO baseline of -0.2 to 0.2 pp by end-2025.
- Core inflation:
  - Lower by 0.15-0.25 pp in the first two years relative to the baseline (core inflation gap narrows by 0.15-0.25 pp in first two years).
- Monetary policy / policy rate:
  - Endogenous policy rate over 2023-25 some 30 to 50 basis points lower relative to the baseline MP path; peak reduction of 30-70 basis points in the second year (models suggest policy rate would be some 30 to 50 bp lower during 2023-25 and peak reduction of 30-70 bp in year two).
- Public debt:
  - Debt-to-GDP ratios decline by up to 2 pp of GDP by end-2025 compared to the baseline (models suggest up to 2 pp lower by end-2025).
  - Dynamics depend on sacrifice ratio and automatic stabilizers; initial primary deficit narrowing less than one to one (SIGMA: 0.75 percent of GDP change in primary deficit reported).
- Interpretation: synchronized fiscal tightening across the EA reduces inflation while allowing a less-tight policy rate path, delivering macro benefits including lower borrowing costs and reduced financial fragmentation risks; near-term output costs are modest and unwind.

Scenario 2 outcomes (consolidation only by HD countries):
- EA inflation reduction is lower than under EA-wide consolidation.
- HD countries face a small short-term output cost (broadly similar to Scenario 1) which is alleviated over time; only HD achieve public debt reduction in this scenario.
- To match EA-wide inflation reduction of Scenario 1, HD countries would need to double their fiscal effort and incur a higher short-term output cost but would achieve larger government debt reduction.
- With an EA-level commitment/incentive mechanism that supports HD during downswings and reduces fiscal fragmentation risks, HD consolidation could improve HD real exchange rate position within the EA and induce stronger HD growth after the first year; effects further improved if consolidation improves market sentiment and reduces HD risk premia.

### Policy implications and recommendations
- Leveraging fiscal-monetary interactions can help address high inflation: fiscal tightening that complements monetary tightening allows a lower policy-rate path and reduces inflation and public debt.
- Fiscal coordination in a currency union matters: explicit EA fiscal architectural reforms to promote fiscal coordination can reduce adverse spillovers and generate stronger responses to shocks.
- Where consolidation is needed, burden-sharing mechanisms (commitment devices, EA-level incentives) are important to avoid disproportionate short-term costs on high-debt members and to prevent market-forced, disruptive consolidations.
- Well-designed fiscal cuts should be accompanied by targeted support to the vulnerable to manage short-term distributional effects.
- Building fiscal buffers during good times and adopting timely EU fiscal rules can reduce the risk that debt distress ties fiscal hands during downturns.

### Caveats and limitations
- The paper does not explicitly model differences in response lags between fiscal and monetary policy, though recent episodes show faster movement of both policies and potentially faster transmission (steeper Phillips Curve), reducing timing mismatch concerns.
- The analysis abstracts from debates on passive vs. active monetary-fiscal regimes and assumes central bank primacy on price stability and fiscal primacy on long-run solvency.

*Source: IMF Working Paper — Introduction (wpiea2023149-print-pdf).*

### 1.5 pp to 2 pp lower in both HD and LD countries by end-2025.

### 1.5 pp to 2 pp lower in both HD and LD countries by end-2025.

### Model design and fiscal multipliers
- Capital expenditures link to potential output via TFP growth, as opposed to current expenditures; a consolidation with more cut to capital expenditures would likely result in lower near and medium-term output and higher debt-to-GDP ratios.  
- Both models have similar fiscal multiplier with the average output loss over average spending cut during the first two years is 0.5 for SIGMA and 0.6 for FSGM.  
- Phillips curve and preference assumptions differ across models:
  - FSGM: Phillips curves are strongly forward-looking (with a forward-looking term of around 0.7), making price reactions to future marginal cost changes larger than in SIGMA.  
  - SIGMA: Uses Kimball preferences, which flattens the Phillips curves relatively.

### Scenario 1 — EA-wide uniform fiscal consolidation (baseline)
- Policy simulated: fiscal consolidation of 1 percent of GDP for two years and 0.5 percent of GDP in the third year (composition: entirely from a cut to government consumption in the SIGMA representation).  
- Key outcomes (union-wide):
  - Core inflation reduction: meaningful across both HD and LD economies (figures referenced).  
  - Policy interest rate: allows endogenous monetary policy path to be less tight; a fiscal consolidation of 1 percent of GDP for two years and 0.5 percent in the third year allows the policy interest rate in 2023-25 to be, on average, 30-50 basis points lower than the baseline.  
  - Public debt-to-GDP: fiscal contraction helps put the public debt-to-GDP ratio on a downward path, aiding rebuilding of fiscal space.  
  - Output: some near-term output loss which narrows over time.  
- Rationale: With core inflation higher than the target by a wide margin across both HD and LD economies, reducing it is both a domestic and EA-wide priority; synchronized fiscal consolidation brings down EA inflation and permits a less tight monetary policy path.

### Scenario 2 — Only the high-debt (HD) country consolidates
- Setup: HD countries (about half of EA output) consolidate while LD countries do not; SIGMA implementation example: HD engages in 1 percent of GDP fiscal consolidation for two years and ½ pp in the third year (same level and composition as scenario 1).  
- Distributional effects and dynamics:
  - Output costs: largely borne by HD group on impact, but these costs reverse within a year in part because the RER of HD becomes more competitive relative to LD as LD does not consolidate.  
  - Public debt-to-GDP:
    - HD falls by 1-2 pp.  
    - LD increases marginally by 0.01-0.05 pp.  
  - Inflation reduction: about 0.1-0.15 pp in the first two years in the EA—less than the uniform-consolidation baseline.  
  - Monetary policy reaction: endogenous MP response is less accommodative than in scenario 1; policy rate some 15-20 bp higher during 2023-25 relative to scenario 1 because of lower fiscal consolidation at the union level.  
  - To match union-level inflation reduction from scenario 1, HD countries (which make up half the union) would need to engage in double the level of fiscal consolidation, leading to larger immediate activity losses but faster debt reduction over three years.

### Scenario 3 — HD consolidation combined with risk premia reduction
- Empirical background: literature documents that risk premia increase with higher public debt ratios, sometimes nonlinearly.  
- Calibration in the paper:
  - When HD reduces spending by 1 percent of GDP for 2 years, followed by 0.5 percent of GDP in the third year, the medium-term debt-to-GDP ratio declines by around 2.5 percentage points.  
  - The scenario considered: HD risk premium declines by 12 bp for the first two years, and another 6 bp in the third year.  
- Effects:
  - Lower risk premia support aggregate demand for the whole union to some extent.  
  - HD group’s output loss will be lower and the debt-to-GDP ratio would decline even faster under the combined consolidation-plus-risk-premia scenario.

### Comparative model results and heterogeneity
- Differences in magnitudes across SIGMA and FSGM are small and reflect assumptions about composition of fiscal shock, the sacrifice ratio, and the slope of the Phillips curve.  
- FSGM and SIGMA produce broadly similar qualitative outcomes: contractionary EA fiscal stance generates additional inflation reduction at the union level relative to the IMF’s January 2023 WEO baseline and allows a less tight monetary policy path.

### Country-level and distributional notes (FSGM annex highlights)
- Union-wide consolidation outcome broadly similar across countries: some output loss narrowing over time, inflation and public debt reduction, and reduced fragmentation risks.  
- High-debt countries (e.g., Greece, Italy, Portugal) face slightly higher output costs of about 0.05-0.1 pp relative to low-debt countries (e.g., Germany and Netherlands), and exhibit lower debt reduction over the three-year period compared to low-debt countries.

### Policy implications and conclusions
- The paper argues for leveraging fiscal-monetary interactions in the euro area (EA) to reduce inflation back to the EA-wide target of 2 percent.  
- Key policy messages:
  - Even when monetary policy is unconstrained, EA-wide fiscal consolidation could bring faster inflation reduction while allowing the monetary policy path to be less tight.  
  - With inflation high in all EA economies, EA governments need to share the burden of lowering inflation with monetary policy.  
  - A fiscal consolidation of 1 percent of GDP for two years and 0.5 percent in the third year reverses or further targets the fiscal support packages of 2022-23 and helps avoid significant increases in interest rates that could materially impact financial conditions and bear fragmentation risks.  
  - There are multiple ways to achieve a union-level fiscal contraction; tradeoffs differ by distribution of effort (proportionate across all countries versus concentrated in high-debt countries).  
  - Findings reinforce the call for timely fiscal architectural reforms to strengthen the currency union and generate more conducive policy responses to economic shocks.

*Source: IMF Working Paper content (as provided).*

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_Source: https://www.imf.org/-/media/files/publications/wp/2023/english/wpiea2023149-print-pdf.pdf_