It's not the ceiling in normal economic times, but the absolute ceiling. If everyone runs deficits of a couple percentage points in good times, 1) how is gross debt supposed to stay below 60% indefinitely, let alone decrease it it is above? 2) what deficit should we expect in bad times, when the private sector shrinks by several percent of GDP and the public sector has to make it up?
However, everyone has taken it as the allowed deficit level in good times, with predictable consequences playing out as we speak. The brainless should not be in banking -- Willem Buiter
The debt levels for all Eurozone countries would be much lower at the start of the crisis, with most countries well below the 60% cap.
The deficit levels, with the budget balance coming down from a higher level, would have stayed below 3% deficit, or would have exceeded it by much less.
In addition, a less loose fiscal policy in 'good times' would have cooled down the economies and likely prevented certain epic asset bubbles from growing so much. The brainless should not be in banking -- Willem Buiter
Migeru:
In addition, a less loose fiscal policy in 'good times' would have cooled down the economies and likely prevented certain epic asset bubbles from growing so much.
But the economy as a whole wasn't really overheating before the crash. Wait this is important. Someone is wrong on the Internet.
Not really that important. We're only talking in these terms because of the Growth and Stability (suicide) Pact. The brainless should not be in banking -- Willem Buiter
