- 10 April 2017
- OCCASIONAL PAPER SERIES - No. 185Details
- The euro area sovereign debt crisis has highlighted the importance of reducing public debt levels and building up sufficient fiscal buffers during normal and good times. It has also reaffirmed the need for a thorough debt sustainability analysis (DSA) to act as a warning system for national policies. This paper introduces a comprehensive DSA framework for euro area sovereigns that could be used for analysis of fiscal risks and vulnerabilities. Specifically, this framework consists of three main building blocks: (i) a deterministic DSA, which embeds debt simulations under a benchmark and various narrative shock scenarios; (ii) a stochastic DSA, providing for a probabilistic approach to debt sustainability; and (iii) other relevant indicators capturing liquidity and solvency risks. The information embedded in the three main DSA blocks can be summarised in a heat map, which can provide guidance on the overall assessment of risks to debt sustainability. This method reflects the need to have a broad-based assessment, cross-checking information and perspectives from various sources with a view to deriving a robust debt sustainability assessment.
- JEL Code
- E62 : Macroeconomics and Monetary Economics→Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook→Fiscal Policy
H62 : Public Economics→National Budget, Deficit, and Debt→Deficit, Surplus
H63 : Public Economics→National Budget, Deficit, and Debt→Debt, Debt Management, Sovereign Debt
H68 : Public Economics→National Budget, Deficit, and Debt→Forecasts of Budgets, Deficits, and Debt
- 23 September 2020
- ECONOMIC BULLETIN - ARTICLEEconomic Bulletin Issue 6, 2020Details
- Fiscal policy is playing a key role in stemming the economic fallout from the coronavirus (COVID-19) pandemic. In addition to the discretionary fiscal policy measures employed by governments, automatic fiscal stabilisers play an important role in cushioning the economic downturn. This article shows that automatic fiscal stabilisers are generally sizeable in the euro area, but vary significantly across Member States. However, their effectiveness may be more limited at the current juncture, given the nature of the COVID-19 crisis and the high uncertainty surrounding its effects. This provides a rationale for a stronger role of discretionary fiscal policy at national and European level. Over the medium term, fiscal policies could increasingly make use of quasi-automatic fiscal instruments that provide additional timely, targeted and temporary macroeconomic stabilisation for the euro area. Careful consideration should be given to the design of such instruments over the business cycle, their economic efficiency, and to the need for building fiscal buffers in good times.
- JEL Code
- H12 : Public Economics→Structure and Scope of Government→Crisis Management
H20 : Public Economics→Taxation, Subsidies, and Revenue→General
E63 : Macroeconomics and Monetary Economics→Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook→Comparative or Joint Analysis of Fiscal and Monetary Policy, Stabilization, Treasury Policy