Abstract
Fiscal policy outcomes in the euro area are mixed: several countries are characterised by large deficits and high debt, while others have managed to keep their public finances sound. This chapter assesses the fiscal performance and takes stock of the redesigned Stability and Growth Pact (SGP). It discusses how fiscal policy can be reformed to improve outcomes. It emphasizes the urgency of seizing the opportunity that the favourable cyclical situation provides to introduce changes – starting with expenditure restraint – that would restore the sustainability of public finances, especially in high-debt countries. A key requirement for better fiscal outcomes in the euro area is that member states should embrace the EU objectives of achieving budget balance and keeping debt in check as national priorities. National medium-term fiscal frameworks and EU surveillance can play helpful roles in supporting progress in this direction.
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