Session A3: Macroeconomic stabilization and social policies in Europe

Session organiser: Alain de Crombrugghe (University of Namur)

 Chair: Robert Strauss (EU Commission, DG Employment, Social Affairs and Inclusion)


  1. Jacques H. Drèze (UCLouvain) & Alain Durré (Lille Catholic University and CNRS), Fiscal integration and growth stimulation in Europe
  2. Alain de Crombrugghe (University of Namur), European unemployment expenditure stabilization


Discussant: Guntram Wolff (Bruegel, Brussels)


Abstract :

The recent crisis has questioned the sustainability of a monetary union in the absence of fiscal integration. It has thus raised calls for international risk sharing within the Euro area and in the European Union.  Such risk sharing could complement and strengthen national risk sharing policies implemented through countercyclical fiscal policy, public investment and social insurance mechanisms.  The papers presented in this session explore risk sharing and/or financing mechanisms at the level of the euro area which are compatible with the subsidiarity principle and with intertemporal budget balance at the country level and at the EU level.  Such cooperation may be more realistic at this stage than a full fledged fiscal union and be more stabilizing than the current European budget rules alone.  Drèze and Durré focus on the output gap as a trigger for risk sharing, while de Crombrugghe proposes a smoothing of domestic expenditure with temporary residual EU levies or funding in case of correlated shocks. By targeting policy instruments like long run social investments (Drèze and Durré) or unemployment benefit expenditure smoothing (de Crombrugghe), the proposed policies would strengthen the social dimension of the EMU in addition to increasing the macroeconomic effectiveness of the national stabilization policies of all member countries. The political support for such policies in Europe and the implementation devices which can limit moral hazard in national economic policies will also be discussed and can inspire further research.


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