Assessment of the fiscal stance appropriate for the euro area in 2023 published by European Fiscal Board (6/2022).
The Covid-19 crisis has drawn more attention to the euro area fiscal stance. In normal times, the aggregation of national fiscal stances consistent with EU rules is likely to result in a fiscal stance appropriate for the euro area as a whole. However, this is less clear in the wake of large economic shocks, such as the one caused by the Covid-19 pandemic. The recourse to the severe economic downturn clause, in the public debate misleadingly dubbed ‘general escape clause’, allows for flexibility, provided this does not endanger fiscal sustainability in the medium-term. Fiscal policy coordination is needed to manage the use of this flexibility. During the pandemic, the notion of the aggregate euro area fiscal stance has been invoked by some observers to encourage a coordinated fiscal reaction to the crisis. The creation of the Recovery and Resilience Facility (RRF) provided a temporary EU-level instrument that impacts the aggregate fiscal stance.
