Europe needs a concerted fiscal stimulus

Commentary feature by resident scholars at Bruegel, the European think-tank.

As a severe recession unfolds in the aftermath of the financial crisis, Europe must avoid entering a vicious circle. To that end, a budgetary
boost is needed on top of the rescue package for the financial sector and further lowering of interest rates by central banks. This budgetary boost should be closely coordinated at EU level to ensure consistency and avoid
free-riding behaviour. However, structural deficit levels in some EU member states are already high. There is a risk, therefore, that a budgetary stimulus could undermine budgetary sustainability. To address this concern, the
stimulus needs to go hand in hand with a strengthened budgetary framework, complementing and reinforcing the Stability and Growth Pact (SGP).

Bruegel: Policy Brief, November 2008: A European Recovery Programme http://aei.pitt.edu/9584/01/European-Recovery-Programme-17112008-2.pdf

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