FES: Could a Debt Repayment Pact Lead Europe Out of the Crisis?
In its latest annual report, Germany’s Council of Economic Experts presented an innovative proposal to resolve the euro crisis in the form of a debt repayment pact. At the core of the debt repayment pact is the temporary funding of that part of public debt that exceeds the 60 per cent limit laid down in the Stability and Growth Pact. A repayment fund is to be used to reduce member states’ debts over a period of 20–25 years.
Bringing interest rates down will gain time for a sustainable consolidation path and growth-friendly reforms. However, the instruments of fiscal discipline proposed for that purpose are too rigid and stimulatory schemes are entirely lacking. Furthermore, the debt repayment pact can succeed only if the ECB is authorised to complement debt reduction with a monetary »mantle of growth«.
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