The cyclically-adjusted budget balance used in the EU fiscal framework: an update

New ECFIN paper here.

8 replies on “The cyclically-adjusted budget balance used in the EU fiscal framework: an update”


It seems fairly clear at this stage that Merkel is aiming for the centre rather than the right. She can hardly lose. Either she takes votes from the SPD or, failing that, she prepares the ground for another grand coalition which would, in practice, probably represent the best outcome as it would the most accurate reflection of the broadest German consensus; that between government, business and organised labour.


“European leaders are cloaking the easing up on the fiscal reins in language designed to reassure investors who have driven bond yields lower since mid-2012. They labelled the policy “differentiated growth-friendly fiscal consolidation,” with deficit targets set on a country-by-country basis.”

Or DGFFC for short!

dublin’s Thespian Union of Fagpackonometricians will be reassured by the shape of the projected portion of the graph on page & of docm’s link from the ECB.

Ponderers of “the meaning of austerity” will be interested in the one on the left, on page 9.


What makes you think that I think deflation generally would be a good idea?

I think it is unhelpful for the ‘left’ to fail to recognise that viewed from the EZ core, there are some senses in which the term “austerity” seems less than wholesome, and its possible over-use tiresome and counter-productive. That graph illustrates the point.

That makes it more difficult to persuade the core EZ electorates to go along with the sort of policy shifts said ‘left’ would like to see.

If I wanted to have continued and sustained wage deflation in the periphery rather than reflationary policies in the core I would be encouraging the commentariat of the periphery to lecture the Germans in particular about how much more austere things are in places like Ireland than they are in Germany.

In any case, it looks like you are suggesting in that comment that it is public sector wages that have been deflated, but not yet private sector wages. Many would contend that, in Ireland at least, the private sector has endured imposed wage cuts, compulsorary redundancies, reduced terms and conditions in a manner the public sector has been much more strongly protected from

Two major wage settlements in Germany last week. Lander (state) workers 5.6% over two years, private workers at IG Metall 5.5% over one year. Acceleration in settlements over past 4 quarters (2012) Q1 2.1%, Q2 2.5%, Q3 3% Q4 3.2%.

The long awaited increase in German demand may be at hand. Wage increases higher than the rate of inflation, there must be an election on the horizon. German workers have been unhappy for about five years now with the lack of return on improved productivity. Draghi’s courageous handling of the ECB is largely responsible for these developments.

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