After COVID-19: Rethinking Fiscal Rules in Europe

Abstract Following the COVID-19 outbreak in Europe this spring and subsequent measures to contain the pandemic, the European Commission drastically revised its economic and fiscal forecasts. The Summer 2020 Economic Forecast projects that the euro area economy will contract by 8.7% in 2020. The coronavirus crisis is expected to push the general government deficit to about 8.5% of GDP this year. Even in an optimistic V-shaped recovery scenario with a GDP growth rate of 6.1% in 2021 due to the temporary nature of lockdown measures taken in 2020, the headline deficit is expected to decrease to about 3.5% of GDP. Furthermore, both the downturn and the rebound of economic activity are expected to be asymmetric across member states, exposing entrenched divergences. The recent outlook highlights the problem of pro-cyclical revisions of potential output and output gap estimates. Some economists warn that the current fiscal framework may lead to pro-cyclical and thus destabilising fiscal policies, a problem encountered in Southern Europe during the European sovereign debt crisis that has implications for the entire European Union. In order to avoid repeating past mistakes, the debate on how to reform European fiscal policy should be settled before the rules are re-enacted when the coronavirus crisis has passed.

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How Do Estimates of Inflation Persistence in Malta Compare with Other EU Countries?

International Journal of Economics and Finance ◽

10.5539/ijef.v12n7p31 ◽

2020 ◽

Vol 12 (7) ◽

pp. 31

Author(s):

Brian Micallef ◽

Reuben Ellul

Keyword(s):

Euro Area ◽

Sovereign Debt ◽

Debt Crisis ◽

Sovereign Debt Crisis ◽

Inflation Persistence ◽

Eu Countries ◽

Gdp Growth Rate ◽

European Sovereign Debt Crisis ◽

Specific Factors ◽

Country Specific

After the European sovereign debt crisis in 2012, inflation has been unexpectedly low across most of the economies making up the euro area, as well as the Monetary Union aggregate, with economists referring to this phenomenon as the “missing inflation” puzzle. As the smallest and one of the most open economies in the euro area, Malta has also registered a period of low inflation post-2012, despite registering an average GDP growth rate of 6.9% per annum over the period 2013-2019. This paper estimates the extent of inflation persistence of Malta and a number of EU economies for both the pre- and post-2012 period. Measures of persistence are computed as the sum of autoregressive coefficients derived from univariate regressions on both aggregated and disaggregated inflation series. Estimates of persistence in Malta have increased when the sample covers the post-2012 period. In terms of the main sub-components, energy inflation has a substantially higher persistence compared to the pre-2012 period, reflecting both external and country-specific factors. Most other EU countries also reported an increase in persistence when including the post-2012 period in the sample although the estimates for Malta, both at the aggregate and disaggregated indices, remain less persistent.

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The Impact of the Introduction of Uniform European Collective Action Clauses on European Government Bonds as a Regulatory Result of the European Sovereign Debt Crisis

Journal of Risk and Financial Management ◽

10.3390/jrfm14010001 ◽

2020 ◽

Vol 14 (1) ◽

pp. 1

Author(s):

Nicoletta Layher ◽

Eyden Samunderu

Keyword(s):

European Union ◽

Sovereign Debt ◽

Debt Crisis ◽

Sovereign Debt Crisis ◽

The European Union ◽

Bond Yields ◽

Member States ◽

Sovereign Bond ◽

European Sovereign Debt Crisis ◽

Collective Action Clauses

This paper conducts an empirical study on the inclusion of uniform European Collective Action Clauses (CACs) in sovereign bond contracts issued from member states of the European Union, introduced as a regulatory result of the European sovereign debt crisis. The study focuses on the reaction of sovereign bond yields from European Union member states with the inclusion of the new regulation in the European Union. A two-stage least squares regression analysis is adopted in order to determine the extent of impact effects of CACs on member states sovereign bond yields. Evidence is found that CACs in the European Union are priced on financial markets and that sovereign bond yields do respond to the inclusion of uniform CACs in the European Union.

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