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,...

The paper shows that the introduction a Eurobond together with fiscal capacity at the centre would produce macro-stabilisation benefits both for the ‘core' and ‘periphery' of the Eurozone and would also achieve a rebalancing of the policy mix away from monetary towards fiscal stimulus. To...