Fiscal Policy, Automatic Stabilisers and Coordination

Abstract

This chapter deals with the fiscal policy behaviour of EU/EMU countries Fiscal policy has become increasingly important in economic policy in general and in the case of European Monetary Union in particular. As far as EMU is concerned, only fiscal policy can be used in offsetting country-specific shocks. On the other hand, fiscal policy is now subject to certain limits that reduce the room for policy manoeuvring The excessive deficit criterion (laid down in the Maastricht Treaty and in the Stability and Growth Pact) may have far-reaching influence on policy behaviour because now the policy-makers have to consider very carefully what is the correct and feasible policy stance. Accordingly, there is less room for fiscal policy errors.