## A Central Fiscal Stabilization Capacity for the Euro Area

_Staff Discussion Notes, March 26, 2018_

## Source details

**Canonical URL:** [A Central Fiscal Stabilization Capacity for the Euro Area](https://www.imf.org/en/publications/staff-discussion-notes/issues/2018/03/22/a-central-fiscal-stabilization-capacity-for-the-euro-area-45741)

## Other formats

- [Markdown version](/en/publications/staff-discussion-notes/issues/2018/03/22/a-central-fiscal-stabilization-capacity-for-the-euro-area-45741/index.md)
- [Structured JSON version](/en/publications/staff-discussion-notes/issues/2018/03/22/a-central-fiscal-stabilization-capacity-for-the-euro-area-45741/index.json)
- [Bundle manifest](/en/publications/staff-discussion-notes/issues/2018/03/22/a-central-fiscal-stabilization-capacity-for-the-euro-area-45741/bundle-manifest.json)

## Bibliographic details
- Authors: Nathaniel G Arnold, Bergljot B Barkbu, H. Elif Ture, Hou Wang, Jiaxiong Yao
- Published: March 26, 2018
- Series: Staff Discussion Notes

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### Overview
- The note outlines a concrete proposal for a euro area central fiscal capacity (CFC) that could help smooth both country-specific and common shocks.
- It proposes a macroeconomic stabilization fund financed by annual contributions from countries used to build up assets in good times and make transfers to countries in bad times, as well as a borrowing capacity in case large or persistent shocks exhaust the fund’s assets.
- The note discusses 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—and thus improve political acceptability.

### Key features of the proposed CFC
- Macroeconomic stabilization fund:
  - Financed by annual contributions from countries.
  - Builds up assets in good times.
  - Makes transfers to countries in bad times.
- Borrowing capacity:
  - Available in case large or persistent shocks exhaust the fund’s assets.

### Design considerations to limit disputes and permanent transfers
- Emphasis on automaticity to limit the scope for disputes over operation.
- Features specifically discussed to avoid permanent transfers between countries, enhancing political acceptability.

### Intended function and scope
- Smooth both country-specific shocks and common shocks across the euro area.
- Operate in conjunction with national fiscal policies and other euro area mechanisms.

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## Content in this bundle

- **Staff Discussion Note**
  - [Staff Discussion Note (Markdown version)](/-/media/files/publications/sdn/2018/sdn1803.pdf.md){rel="alternate" type="text/markdown"}
  - [Staff Discussion Note (PDF)](/-/media/files/publications/sdn/2018/sdn1803.pdf){rel="external" type="application/pdf"}

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_Source: https://www.imf.org/en/publications/staff-discussion-notes/issues/2018/03/22/a-central-fiscal-stabilization-capacity-for-the-euro-area-45741_