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Symposium 2011

Solution for 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 h ...

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.

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

The magnitude of the borrowing requirements reached by several of the advanced economies is notable. As reported by the IMF Fiscal Outlook for 2011, the borrowing requirement (the sum of the budget deficit plus debt amortizations) amounts to 56% of GDP in Japan, 29% of GDP in the US; between 20 and 24% of GDP in Greece, Italy, Belgium, Portugal, Ireland and France; and 19% of GDP in Spain.

Debt maturities have been shortened in several economies to take full advantage of near-zero short-term interest rates, contributing to increasing the size of aggregate financing requirements. Hence, when borrowing requirements expand very fast, it is not surprising that market pressures have materialized in the smaller or the most indebted EU economies.

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    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

    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