Are the current „automatic stabilisers“ in the Euro Area Member States sufficient to smooth economic cycles?

Content

This report provides a country-specific stocktaking of automatic stabilisers in the Eurozone and analyses the effect of automatic stabilisers in preventing pro-cyclical fiscal policies in good and bad times.

The report shows that the size of automatic stabilisers varies greatly across Euro-area Member States. While automatic stabilisers have played an important role in the early phase of the financial and economic crisis in 2008/2009, their countercyclical effect was partly offset in some Member States by a pro-cyclical fiscal stance in other years, in particular throughout the period 2011-2016.

The report concludes that Euro-area fiscal governance needs to be improved and that it is key to build up fiscal buffers in good economic times so that automatic stabilisers can operate freely in prolonged downturns.