- This questions is based on the article, “What next for the EU’s fiscal rules?,” published by The Economist on October 29, 2020. The article discusses the experience of the Eurozone with fiscal rules that the European Union (EU) had adopted as part of the 1992 Maastricht treaty in preparation for the adoption of a common currency, the euro, in a monetary union. The center piece of those rules were caps on budget deficit (3% of GDP) and public debt (60% of GDP). These basic rules were modified in 2010s in response to the problems that the member countries encountered. In reading the article and answering the questions below, please note that “structural deficit” means the deficit that would have prevailed if the economy were operating at its production capacity given the government’s tax and expenditure policies.
(a) Based on the discussion in the article, how well have Eurozone members observed the union’s key fiscal rules? Did each of the three biggest economies of the zone stick to those rules and enforce them on other zone members? Please explain your answer. [10]
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(b) In what ways have the EU’s fiscal rules changed since the early 2000s? Did the changes allow for more flexibility? Did adherence to the rules become easier to assess and enforce? Please explain your answer. [13]
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(c) The article points out that the EU’s has currently suspended its fiscal rules until the end of 2021. How would this suspension help the recovery of the EU economy? Would the policies adopted during that suspension make it easier for the EU member countries to move toward compliance with the fiscal rules in 2022 and beyond? Please explain your answer. [7]
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