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Symposium 2011

Redesigning Fiscal Consolidation and Debt Management

The Challenge

The global financial crisis has dramatically worsened the state of public finances in the majority of developed economies. Many are on unsustainable fiscal trajectories and there is broad agreement hat very substantial consolidation efforts are needed to re-establish stability. But there is much debate about the extent and timing of the consolidation process.

Large short-term fiscal consolidation measures are likely to restrain severely the chances of recovery from the high levels of unemployment in many countries. But postponing consolidation may not be a viable option in cases where the fiscal position has worsened to such an extent that a country is no longer able to borrow on the international capital markets at sustainable interest rates.

What is the most desirable way to avoid exploding national debt in times of slow growth and recession-prone economies? How can a country establish an optimal path of consolidation? How is that path affected by the country’s standing in the financial markets? Should the consolidation path be combined with a path for the growth of public expenditure?

To what extent should there be constraints on national governments’ ability to determine the path of consolidation? How should these constraints be implemented? How can conflicts be avoided between internal constraints (for example, through national debt breaks or national stability councils) and external constraints (for example, through conditionality imposed by the International Monetary Fund or obligations under the European Union’s Stability and Growth Pact)?

Is a full-bore restructuring inevitable in a number of fiscally challenged European countries? What are the risks that the United States will be forced by the markets to follow the “austerity” approach of the UK and other countries?

    Solutions

    Solution
    Symposium 2011

    Radical fiscal consolidation should focus mainly on public spending cuts and also include steps to improve competitiveness.

    Radical fiscal consolidation should focus mainly on public spending cuts and also include steps to improve competitiveness.

    Radical fiscal consolidation should focus mainly on public spending cuts and also include steps to improve competitiveness.

    Polity
    Solution
    Symposium 2011

    Fiscal consolidation should take account of not just solvency but also liquidity considerations, such as the size of the yearly borrowing requirement.

    Fiscal consolidation should take account of not just solvency but also liquidity considerations, such as the size of the yearly borrowing requirement.

    Fiscal consolidation should take account of not just solvency but also liquidity considerations, such as the size of the yearly borrowing requirement.

    Polity, Civil Society
    Solution
    Symposium 2011

    Ideas from Students of the Humboldt Schule, Kiel

    Ideas from Students of the Humboldt Schule, Kiel

    Ideas from Students of the Humboldt Schule, Kiel

    Polity, Civil Society

    Proposals

    Proposal
    Symposium 2011

    Redesigning Fiscal Consolidation and Debt Management

    Europe must make serious reforms to ensure fiscal and financial stability. Given the magnitude of the fiscal problems in many of the OECD countries, the fiscal consolidation must be substantial and fo ...

    Europe must make serious reforms to ensure fiscal and financial stability. Given the magnitude of the fiscal problems in many of the OECD countries, the fiscal consolidation must be substantial and for this kind of consolidation to be credible, the government must use all means available, which implies both increasing taxes and reducing spending. If public finances are not sustainable in the long term, the financial markets, households and businesses lose confidence in the ability of the public sector to meet its commitments. It is this type of crisis of confidence that several European countries are now experiencing. Doubt

    Polity
    Proposal
    Symposium 2011

    Redesigning Fiscal Consolidation and Debt Management

    Politicians in the U.S. and Europe have proved themselves unable to move quickly, decisively, and consistently in handling the serious economic crises since 2007. For example, although the U.S. Congre ...

    Politicians in the U.S. and Europe have proved themselves unable to move quickly, decisively, and consistently in handling the serious economic crises since 2007. For example, although the U.S. Congress ultimately passed a stimulus act in 2009, it was far too small and short-term to get the U.S. economy back on track. This year, Congress not only failed to renew the stimulus, but provoked a downgrade of U.S. debt when it could not even agree to raise the debt ceiling until the last minute. In Europe, leaders have responded weakly and tardily to a series of sovereign debt crises

    Polity
    Proposal
    Symposium 2011

    Redesigning Fiscal Consolidation and Debt Management

    Governments should formulate an explicit fiscal plan for stopping the increase in the national debt /GDP ratio no later than 2015. Considering current debt levels, this could in most cases be achieved ...

    Governments should formulate an explicit fiscal plan for stopping the increase in the national debt /GDP ratio no later than 2015. Considering current debt levels, this could in most cases be achieved by improving the cyclically-adjusted primary balance by 1-2 percentage points per year. Postponing the stabilisation of the debt/ GDP ratio further would reduce the credibility of the consolidation plan, and could lead to increases in long-term interest rates which would be harmful for economic recovery.In the context of the medium-term strategy the government should announce a target path for public spending as well as its plans for tax

    Polity, Academia
    Proposal
    Symposium 2011

    Redesigning Fiscal Consolidation and Debt Market - Proposed by Dr. Hans-Paul Buerkner

    There are no innovative solutions to fiscal consolidation and debt management. Indeed, "creative solutions" to incur debt (sub-prime mortgages with low or no interest payments in the first couple of y ...

    There are no innovative solutions to fiscal consolidation and debt management. Indeed, "creative solutions" to incur debt (sub-prime mortgages with low or no interest payments in the first couple of years) or hide the accumulation of debt (as in the case of Greece with the help of financial institutions) have played a key role in the development of the financial crisis. So, the solution may lie in good old traditional cost cutting combined with tax increases, systematic rescheduling of debt and allowing bankruptcy to happen. Rather than trying to prevent recessions from happening by creating excess liquidity, extending more credit

    Polity, Academia, Business, Civil Society
    Proposal
    Symposium 2011

    Redesigning Fiscal Consolidation and Debt Management

    The experience and policies of the United States, both during the period of financial crisis and during the recession period, provides examples and lessons for Europe and the rest of the world. Conseq ...

    The experience and policies of the United States, both during the period of financial crisis and during the recession period, provides examples and lessons for Europe and the rest of the world. Consequently, I will focus on the situation in the United States, which I view is my comparative advantage.1 In 2008, the US debt held by the public was $5.8 trillion. By the end of 2012, just four years later, it will likely be about double that number. The debt averaged 38.5% of GDP during the 30 years ending in 2008, but rose by about 10 percentage points

    Polity, Academia
    Proposal
    Symposium 2011

    Redesigning Fiscal Consolidation and Debt Management

    As I argued in my 2009 GES solution prepared for the discussion on exit strategies, the benefits of expansionary fiscal policy have been vastly overestimated in the recent global financial crisis. On ...

    As I argued in my 2009 GES solution prepared for the discussion on exit strategies, the benefits of expansionary fiscal policy have been vastly overestimated in the recent global financial crisis. On the contrary, monetary policy actions of the orthodox and heterodox kind have been effective in coping with the effects of the breakdown of confidence and the market disruptions that took place around (and especially after) the collapse of Lehman Brothers. Likewise, the balance of risks associated with the fiscal and monetary policy responses are very different. While I continue to see no significant risks ahead emerging from the

    Polity, Academia, Business, Civil Society