Sustainability and Solvency of Government Finances under the Euro: Illustrations and Policy Options

Arbeitspapier

In this paper, sound public finances under the euro means sustainability in the long term instead of short- and medium-term fiscal discipline. The challenges to sustainability are identified for the four largest euro area member states, and several policy options for sustainability are illustrated with scenarios. Sustainability of the government finances is required for being solvent and having continuous access to credit at acceptable interest rates. Solvency in the long term is the key link between coherent fiscal and monetary policies. A main tool of the Eurosystem for setting an appropriate monetary stance is purchasing bonds issued by the solvent governments. It also must assess their solvency if it needs to act as the lender of last resort for a euro area government under liquidity shortage to prevent it from developing into a general financial crisis. Resolving the crisis caused by the Covid-19 pandemic requires confidence that the public finances will be steered towards sustainability and the Eurosystem can take its proper role as a central bank.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: CESifo Working Paper ; No. 8396

Classification and Topics

• Classification: Wirtschaft ; Monetary Systems; Standards; Regimes; Government and the Monetary System; Payment Systems ; Fiscal Policy ; Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy ; Structure and Scope of Government: General
• Subject: euro ; fiscal policy ; monetary policy

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Oksanen, Heikki
• Event: Veröffentlichung
• (who): Center for Economic Studies and Ifo Institute (CESifo)
• (where): Munich
• (when): 2020

Further information

• Handle: http://hdl.handle.net/10419/223468
• Last update: 10.03.2025, 11:44 AM CET