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07 Sep 2010

Fiscal Policy Coordination and Competitiveness Surveillance: What solutions to what problems?

Daniel Gros / Cinzia Alcidi

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Close coordination of national fiscal policy and surveillance of competitiveness seem highly desirable within a monetary union. But are they also feasible? This note argues that surveillance of competitiveness risks concentrating on symptoms (rising wages in the non-tradable sector), rather than the underlying causes (credit-financed booms). Moreover, the economic rationale for fiscal policy coordination (beyond the strict enforcement of the Stability and Growth Pact – SGP) seems to be weak during normal times. While it makes sense to coordinate the fiscal response of member states to the present crisis, it does not seem appropriate to develop new permanent mechanisms for the coordination of national fiscal policy.