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The idea is that we create something we call the European Fiscal Mechanism, the EFM. This is an independent organization which is tasked with estimating the aggregate European output gap. If it detects such an output gap, it injects fiscal assets (i.e. cash) into the state budgets of all Euro member nations, in some way which is seen as fair. Say, a country which makes up 20% of the Euro economy gets 20% of the cash, no matter if it has an actual output gap or not.
Okay... EU Balks at Changing Deficit Rule to Ease Austerity (WSJ, September 25, 2013)
The change was approved by technical experts at a meeting last week and was expected to be supported at a Tuesday meeting of more senior officials in Brussels. But an article published in The Wall Street Journal about last week's decision generated concern in some national capitals about its effects on budget policies, an EU official said.


The change involves a highly technical methodology that the European Commission, the European Union's executive arm, uses to calculate the "structural deficit," which is the actual budget deficit adjusted for the strength of the economy. The commission uses the structural deficit to determine how much austerity governments will need to undertake to meet EU budget targets.


Europe's current calculations about how much of the deficit is structural and how much is caused by the downturn in the business cycle assume much of the budget deficits seen in the bloc's weakest economies are built-in, meaning they will persist even after the economy has returned to full strength. If a deficit is structural, rather than cyclical, more austerity measures--spending cuts or higher taxes--are required.

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman
by Carrie (migeru at eurotrib dot com) on Wed Jul 23rd, 2014 at 05:30:01 AM EST
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