Fiscal policy in EMUFiscal policy in EMU

Prepared by/Prepared by/Mohamed Sayed AbunarMohamed Sayed AbunarAsaad Tolba Abdel-HalimAsaad Tolba Abdel-Halim

Supervised with/Supervised with/Prof Dr. Nagwa SamaProf Dr. Nagwa Samakk

• We will discuss the issue of fiscal policy in EMU through the following points:-

- introduction.

- the presentation objectives.

- the Economic rationale for fiscal coordination in the Euro-Zone.

- coordination by rules and other institutional arrangements:- constraints and incentives on national governments choices.

- the case of supra-national fiscal rules in a monetary union.

- proposals to improve the pact.

- Introduction: 1) the establishment of EMU and fiscal monitoring.

2) the stability programme.

3) the budgetary positions.

• The presentation objectives:- The integration of national fiscal policies into a coherent

European stance is the main problem, as the difficulties of implementing the Stability and Growth Pact reveal, then This presentation argues the following:-

• An optimal policy mix in Euro-land requires an integrated fiscal policy framework that also takes into account the budget of the EU.

• The aggregate fiscal policy stance in Euro-land, which matters for monetary policy, is then the book-keeping result of adding up the different national budget positions.

• The necessity for fiscal co-ordination to prevent individual member states from abusing on intertemporal transfers, at the expense of the others.

• The Economic Rationale for Fiscal Coordination in the Euro-Zone:-

1:- Fiscal Policy in a Monetary Union

- policy outcomes in Europe

* Policy objectives * policy instruments * policy targets.

- the need for policy coordination (externalities:- the rationale for policy coordination)

- objections for coordination

2:- The Nature of Macroeconomic Spillovers from Fiscal Policies

3:- Tax Competition

4:- external Effects from Domestic Public Spending

5:- structural reforms and others sources of spillovers

- cohesion

- enlargement

6:- Rules vs. Discretion: The Distrust of Democratically Elected Governments

- Coordination by Rules and other Institutional Arrangements: Constraints and Incentives on National Governments Choices

1- Negative Coordination by Rules: Outlawing Dangerous or Harmful Strategies

2- The Aggregate Policy Mix

- The case for supra-national fiscal rule in a monetary union.

1- externalities arising from unsustainable public debt.

2- externalities from excessive deficits when sustainability is assured.

• Some proposals to improve the pact

1- expenditure rule.

2- allocating of deficit rights

3- an independent fiscal authority.

4- making debt sustainability central to the SGP.

THANKS for your attention