The Penninsula (Qatar) — Fiscal policy to the rescue in the Eurozone

Over the past few years, the economic literature and prominent scholars have paved the way for expansionist fiscal policy. In the US, Modern Monetary Theory proposes to finance a Green New Deal and full employment by increasing the deficit and using the central bank to pay off debt by printing more money. MMT is attracting more and more attention in Europe, including among populist parties, but also beyond, and will certainly be part of the conversation in upcoming elections.

Investment to finance clean energy transition is gaining strong support among European citizens, as shown by the victory of Green parties in the latest EU parliamentary elections....

The Penninsula (Qatar)
Fiscal policy to the rescue in the Eurozone

A bigger bazooka — Christopher Dembik

Applying MMT in the EZ.

The likely growth slowdown in the euro area in the coming quarters will be the trigger for this new phase of expansionist fiscal policy.

However, uncertainty remains as to the scale and the implementation of the stimulus. If it is up to member countries, the stimulus is likely to be under-supplied as many governments will have little incentive to do much. Europe will face the same free-rider problem as in the past, with countries patiently waiting to benefit from the stimulus policies of their neighbours. The ideal scheme would be that of coordinated fiscal expansion through fiscal agreement or a proper common budget incorporating counter-cyclical mechanisms. That would involve highly sensitive political concessions, especially on risk-sharing, and high execution risk, but this would be the most efficient way for the eurozone to avert an upcoming economic downturn.

ZAWYA — A Thompson-Reuters site
A bigger bazooka

Christopher Dembik