Fiscal Policy in the Southern European Union Countries

The Aftermath of COVID-19

Author: Milan Bednář

Publisher: Springer Nature Switzerland

Book Series : Contributions to Finance and Accounting

Part of: Springer Professional "Wirtschaft+Technik" , Springer Professional "Wirtschaft"

Table of Contents

About this book

This book examines public debt hoarding within the Euro Area, which is one of the most complicated challenges regarding modern fiscal policy-making. The author offers an up-to-date analysis of the fiscal situations of Italy, Spain, Portugal, and Greece. The book describes key mechanisms of debt transmission, discusses the potential establishment of fiscal and debt union in the EU, identifies numerous implications, and connects the fiscal positions of the examined countries with the structural flaws of the Euro Area and the monetary policy of the European Central Bank. Moreover, the work presents an estimation of structural budget balances, including a comparison with the estimates of major international institutions such as the IMF, OECD, and European Commission. A separate chapter is devoted to analysing the fiscal policy determinants, using time series since the late 19th century, and the issue of fiscal policy efficiency. Finally, the work provides an overview of debt resolution options. Overall, this book offers eight core chapters intended for the public, professional economists, and policymakers.

Frontmatter

Chapter 1. Introduction

Abstract

The chapter introduces the issue of fiscal policy-making in the Euro Area and contrasts it with recent developments. Currently, some of the Southern EU countries show extremely high levels of indebtedness and are now among the most indebted countries in the world. This fact represents one of the most complicated challenges regarding modern fiscal policy-making. The topic is relatively broad and has been discussed in a large number of books, studies, and analyses. However, the research lacked comprehensive work that would evaluate the issue from all major economic perspectives while focusing on a detailed quantitative analysis of the standings of the Southern EU countries. A sole fiscal analysis is not sufficient due to the broad nature of the topic. The presented book offers eight core chapters intended for the public, professional economists, and policymakers simultaneously.

Milan Bednář

Chapter 2. Fiscal Policy and Government Debt in the Twenty-First Century

Abstract

The chapter focuses on the definitions and the implications of the most fundamental concepts related to various fiscal analyses used in the other parts of this work. The text provides a brief overview that deals with the most crucial aspects regarding the topic of this work. The presented concepts serve as a baseline for a detailed description of other, more sophisticated notions used in the following chapters. First, the chapter defines the basic principles of fiscal policy. Then, it follows with basic definitions of government debt and related concepts, which are used throughout this work. Subsequently, it identifies the interaction between fiscal and monetary policy and focuses on the influence of monetary policy over the fiscal setting. In addition, it briefly summarises the adverse effects associated with excessive debt accumulation. Finally, it discusses various approaches to sovereign debt sustainability assessments.

Milan Bednář

Chapter 3. European Debt Crisis and Flaws of the Euro Area

Abstract

The chapter focuses on a brief description of the European debt crisis and the relevant economic policy implications. The second main theme is an identification of structural flaws of the Euro Area, which lead to the unfavourable situation of the EU4 countries. The text describes the Euro Area’s five main structural flaws and describes them in detail.

Milan Bednář

Chapter 4. Sovereign Debt Channels in the Euro Area

Abstract

The chapter contains eight key mechanisms of debt accumulation in the Euro Area. I propose distinguishing between debt mechanisms that are working under the condition of full information, under information asymmetry, or the combination of both factors. The focus of this chapter on institutional features should help find an optimal policy and institutional mix, which would support the efficiency of the fiscal measures. Furthermore, the findings may help further clarify the problem of whether there is a finite horizon of debt accumulation in the Euro Area.

Milan Bednář

Chapter 5. European Fiscal and Debt Union

Abstract

The chapter examines if a deeper fiscal integration would solve the issues of the Euro Area and, more importantly, if the centralised policy reaction to the COVID-19 pandemic in the form of debt redistribution was appropriate. It concludes that the fiscal redistribution mechanism is limited, and its strengthening escalates the fundamental flaws in the Euro Area.

Milan Bednář

Chapter 6. Specific Characteristics of EU4 Economies

Abstract

Four Southern EU countries were selected for the analysis. These include Italy, Spain, Portugal, and Greece—the EU4 countries. As a starting point of the analysis, the chapter evaluates these countries’ overall macroeconomic position (both in absolute and relative terms). The chapter concludes that the EU4 countries are in difficult positions. Their standings differ; however, these countries likely form a separate cluster within the Euro Area.

Milan Bednář

Chapter 7. Fiscal Situation in the COVID-19 Aftermath

Abstract

The chapter provides general information about the fiscal conditions of the EU4 countries. First, it shows the main fiscal indicators of the EU4 countries. Second, it presents estimates of structural budget balances, examines their development, and derives characteristics of the EU4 fiscal policies. The results are compared to the estimates of major international institutions—the IMF, OECD, and European Commission. Several estimates need to be performed to be able to extract relevant information. The text describes the procedures used. Third, it evaluates the countries’ positions from a long-term view using a fiscal sustainability analysis.

Milan Bednář

Chapter 8. Long-Term Determinants and Efficiency of Fiscal Policies

Abstract

The chapter identifies and describes the determinants and efficiency of the fiscal policies of the EU4 countries. The text emphasises the analysis of general patterns. Moreover, the presented estimates were made using the same methodology for all the countries. This fact makes the estimates comparable. The first part of the chapter deals with fiscal determinants. It presents estimates of fiscal reaction functions using error correction (EC) models. The second part of the chapter focuses on estimating fiscal multipliers, which are used for the efficiency evaluation of the EU4 fiscal policies. In this regard, advanced Bayesian vector autoregressive (BVAR) models are employed.

Milan Bednář

Chapter 9. Sovereign Debt Resolution Prospects

Abstract

The last chapter puts together the previous text and analyses the possibilities of dealing with the excessive indebtedness of the EU4 countries. Its objective is to provide an overview of suitable options and objectively analyse the position of the EU4 countries. It should be noted that it is primarily examining mid-term and long-term outlooks and resolutions as opposed to short-term perspectives, which EU officials often emphasise. Furthermore, it addresses various counterarguments and identifies false arguments.

Milan Bednář

Chapter 10. Conclusions

Abstract

The final chapter summarises all the findings of the book. It describes the debt-accumulation channels of the EU4 countries and discusses the unsustainability of their fiscal policies. Furthermore, it deals with all the relevant aspects, including debt projections, the relevant fiscal determinants, and the efficiency of the EU4 fiscal policies. Moreover, it summarises the fiscal-related effects of the common monetary policy of the ECB and explains that establishing a fiscal union is not an appropriate solution to the issues. The chapter demonstrates that a return to market principles is needed, and the current Euro Area should focus on competitive advantages, long-term policies and a transparent system design that would not require serious government interventions.

Milan Bednář

Title: Fiscal Policy in the Southern European Union Countries
Author: Milan Bednář
Publisher: Springer Nature Switzerland
Electronic ISBN: 978-3-031-29761-8
Print ISBN: 978-3-031-29760-1
DOI: https://doi.org/10.1007/978-3-031-29761-8