Fiscal Consolidation in a Leaderless Global Economy

Kovács, O. (2013): Fiscal Consolidation in a Leaderless Global Economy. News of the Month, ICEG European Center, April 2013 pp. 4-9.

The issue whether the austerity-driven crisis management can be regarded as an instructive way forward or not has been long discussed without reaching a broad consensus. Albeit there is a common view over the fact that injected and coordinated fiscal and monetary stimulus did nothing but limited and merely postponed the downturn, there is no ’unitas in necessariis’ with regard to austeritarian policies. This paper addresses the question whether we can have an efficient global governance that would conduct necessary fiscal adjustments and reforms having spillover effects. In other words, can we imagine a hegemony on the basis of the state-of-the-art knowledge on a highly globalised world? At first blush, a well coordinated crisis management would be of paramount importance in bringing down deficits without jeopardising growth prospects by utilising spillover effects of fiscal consolidations as well. We argue that the idea of creating a prudent global governance might be ranked with the category of bucolic wishes. In our context, in the era of public debt, fiscal consolidations should be pervaded by both pro- and anti-cyclical features conducted in a contextualised way by European national governments being accompanied with longer term structural reforms.