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Fiscal stabilization in the euro area

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Fiscal stabilization in the euro area by Mahmood Pradhan

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Fiscal stabilization in the euro area

  1. 1. Fiscal stabilization in the euro area Mahmood Pradhan Deputy Director, European Department OCED-France Strat�gie workshop February 5, 2019
  2. 2. 1 Euro Area Policy Stance 0 50 100 150 200 250 Euro area United Kingdom United States Japan Gross Public Debt, 2012 (Percent of GDP) -4 -2 0 2 4 6 8 Euro area United Kingdom United States Japan Output Gap and Structural Deficit, 2013 (Percent of potential GDP) Structural deficit Output gap Source: World Economic Outlook.
  3. 3. 2 Few Euro Area Countries Have Fiscal Space Fiscal Space Assessment (2017) ITA PRT ESP FRA DEU NLD Availability of financing Have sovereign bond spreads breached benchmarks in the last 3 months? 0 0 0 0 0 0 Do debt profile indicators breach benchmarks? Share of public debt held by non-residents 1 1 1 2 2 2 Change in share of short-term debt 0 0 0 0 External financing requirements (percent of GDP) 2 2 2 0 0 State of debt burden indicators Does debt level breach the benchmark during projection period? 2 2 2 2 0 0 Do gross financing needs breach the benchmark during projection period? 2 0 0 0 Desk Bottom-Line 2 2 2 2 0 0 Source: IMF staff.
  4. 4. 3 Countries With Large Output Gaps Had High Debt Austria Belgium Cyprus Estonia Finland France Germany Greece Ireland Italy Luxembourg Malta Netherlands Portugal Slovak Republic Slovenia Spain 0 50 100 150 200 -16-14-12-10-8-6-4-20 PublicDebt Output gap Public Debt and Output Gap, 2013 (Percent of GDP) Source: World Economic Outlook.
  5. 5. 4 A Moderately Sized CFC Can Provide Meaningful Stabilization -7 -6 -5 -4 -3 -2 -1 0 t-4 t-2 t t+2 t+4 Impact of Large Shock on Output Gap (Percent of GDP) Without CFC With CFC 0 1 2 t-4 t-2 t t+2 t+4 Size of Fund (Percent of GDP) Build up Draw down Source: IMF staff calculations.
  6. 6. 5 Not Enough Debt Reduction In Good Times 21 21 36 65 85 99 0 20 40 60 80 100 120 140 1970 1980 1990 2000 2010 France CEPR euro area recessions Debt 49 56 95 100 115 131 0 20 40 60 80 100 120 140 1970 1980 1990 2000 2010 Italy Government debt (percent of GDP) Source: CEPR, AMECO.

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