Global Agenda Council on Fiscal Sustainability 2012-2013
The challenges of fiscal sustainability are present in many regions of the world. Europe, the United States, the United Kingdom and Japan all have looming problems pertaining to public debt and deficits. The escalating crisis in the Eurozone still threatens not only European prosperity, but growth prospects around the world.
The Global Agenda Council on Fiscal Sustainability focuses on developing medium and long-term solutions for promoting fiscal responsibility and the credible governance of public finances around the globe.
Challenges to fiscal sustainability exist in many regions of the world. However, the crisis in the eurozone has escalated to the extent that it threatens not only European prosperity but also growth prospects around the world. The crisis continues despite a series of “comprehensive” policy packages announced by many European countries’ heads of state and government.
After an exceptionally generous long-term liquidity provision from the European Central Bank, funding markets calmed down and sovereign spreads narrowed in early 2012, but began to widen again in a number of European economies. The break-up of the eurozone and the possibility of Greece exiting the currency union, unthinkable just months ago, is now considered a viable solution by many policy-makers.
The European fiscal crisis has proven once again the interconnected nature of global economies and the contagion of consequences that policies in one country or region can cause on the rest of the world. Thus, a holistic approach to defining globally compatible and politically feasible solutions is needed.
In the context of social unrest and soaring unemployment rates in Europe, defining a sustainable path for Europe and restoring confidence in the health of the European fiscal policy remain the priority for European policy-makers. Assessing growth prospects and outlining mechanisms for reviving growth are at the heart of the long-term fiscal sustainability agenda.
- Government debt in the eurozone is constantly increasing. At the end of the first quarter of 2012, the government debt to GDP ratio in the euro area (EA17) stood at 88.2%, compared with 87.3% at the end of the fourth quarter of 2011.
- The breakup of the eurozone (with the exit of Greece, Portugal, Ireland, Cyprus and Spain) is estimated to cost 385 billion euros for Germany.
- In Spain, 52.7% of 15- to 24-year-olds are unemployed.
“America is headed for a fiscal cliff at the end of this year. If Congress does not act, US$ 1.2 trillion in automatic spending cuts will take effect as will a number of tax hikes on 1 January. Many economists believe this so-called fiscal cliff could send the country back into recession.”
Laurency Kotlikoff, William Fairfield Warren Professor, Boston University, USA
“Like Latin America in the early 1980s, we are at a juncture where we face a lost decade – at least for Europe, perhaps for the world. Whether we can avoid this scenario will depend first and foremost on whether we can muster a broad strategy to deal with our debt problems; one that transcends traditional fiscal instruments, borders, and the interests of particular groups.”
Jeromin Zettelmeyer, Deputy Chief Economist and Director, Research, European Bank for Reconstruction and Development (EBRD), London
Annual Meetings of the International Monetary Fund and the World Bank Group
12-14 October 2012
Washington DC, USA
Joint Conference on EU Fiscal Governance of the European Commercial Bank and the International Monetary Fund
13-14 December 2012
G20 Meetings of Finance Ministers and Central Bank Governors
3-4 November 2012
Mexico City, Mexico
The Global Agenda Council on Fiscal Sustainability aims at developing solutions to the challenge of fiscal sustainability in advanced economies, as well as identifying adjustment processes and their implications for the rest of the world. Council Members recognize that this year the Council should examine, in addition to continuing problems in Europe, the fiscal challenges facing the United States and the emerging markets.
Last year, the Council collaborated with experts from other Councils to develop a comprehensive strategy paper link outlining a long-term vision for the eurozone. Experts from the private and public sectors, research institutions and think tanks established an informal “Friends of the Euro” group united around one goal: saving the eurozone from fiscal collapse. The group’s work has been shared with the German Council of Economic Advisors and other European policy-makers.
This year, the Council will focus on:
- long-term institutions for European fiscal policy. While there is an increasing convergence of opinion on the need to establish a fiscal union in addition to the existing monetary union in Europe, European and global experts are not agreed on what such a union would entail. The Council will seek to define the key characteristics of a fiscal union and assess its political feasibility.
- the nexus between monetary and fiscal policy. The distinctions between monetary and fiscal policy have blurred in both the United States and Europe as a result of quantitative easing by their central banks. This raises questions about the institutional separation of monetary and fiscal policy.
- the questions of private versus sovereign debt, and debt restructuring. Some of the present public debt problems are due to the socialization of private losses. Is there a need to, in effect, re-privatize these losses through debt restructuring?
Council Manager: Liana Melchenko, Associate Director, Head of Knowledge Management, Global Agenda Councils, email@example.com
Forum Lead: Michael Drexler, Senior Director, Head of Investors Industries, firstname.lastname@example.org