Roel Beetsma, Massimo Guiliodori and Peter Wierts have just released a very interesting paper that examines the gap between announced fiscal plans and final fiscal outcomes for a panel of EU member countries. These authors find that ‘implementation errors’ are sizeable and in fact fiscal outcomes tend to be more correlated with these errors than with the original plans. Recommending reading: you can download it here.
Axel Weber made an interesting speech last night. He recognises that European fiscal assistance to a member state may be possible, but only under extreme conditions. Moreover, in order to comply with the ‘no bailout’ clause, any loan would have to be conditional (he does not specify the list of conditions).
Key part of the speech:
“It should be emphasised that the “no-bail-out” rule, as stipulated in the EC Treaty, is an indispensable instrument for preventing moral hazard behaviour by the member states. With that in mind, issuing blank cheques would definitely be the wrong course of action.
Yet, EMU is our common destiny. If any kind of help for a member state were necessary in the improbable case of an extreme emergency, the clear conditionality of such support would be essential in order to comply with the Treaty.”
Jim O’Leary provides an extensive analysis of the options for this not-so-mini budget here.
Written by Patrick Honohan and Philip Lane, there is a new essay posted on the VOX website that seeks to explain the current state of the Irish economy and recommends a shift in fiscal strategy: you can read it here.
Update: A shorter version of the article appears in the March 1 edition of the Sunday Business Post.
Update: The article is also cross-posted at Roubini Global Monitor.