This paper studies the impact of political events that systematically undermined the Stability and Growth Pact (SGP) on the euro's foreign exchange expectation bias for the period 2001 to 2005. Our findings suggest that euro foreign exchange markets were attentive to the political dispute over...

From a retrospective perspective, effective future fiscal cooperation in Europe is not likely to stand a chance. Focusing on the Stability and Growth Pact (SGP, the Pact), this paper studies the determinants of national policymakers' changing commitment to a multilateral fiscal rule, referred to...

Most current Eurobond proposals imply substantial cross-subsidisation since some countries partially pay the risk premia for others, thus creating moral hazard and disincentives for fiscal discipline. We suggest, instead, to use standard technologies of financial intermediation like pooling and...

Does a multilateral fiscal rule improve market discipline in a monetary union? This paper studies the impact of political events that systematically undermined the Stability and Growth Pact (SGP) on EMU sovereign default risk for the period 2001 to 2005. For various EMU member countries our...

The 2005 reform of the EU Stability and Growth Pact has provided leeway for governments to let their fiscal deficit temporarily breach the 3% rule to finance the immediate budgetary cost of structural reform, such as compensation schemes to offset redistributive effects. Against this backdrop,...

This paper examines the effects of fiscal policy on output in the euro area. For this purpose we develop a DSGE Fiscal Model with endogenous government bond yields to assess the impact of different fiscal policy shocks on output, its components and on government debt. The simulations suggest...