Forms of fiscal governance in the Euro Area - An update

Despite the common Euro Area (EA) requirements, we find notable differences in the quality of fiscal governance among the 19 member states. Moreover, characteristics of the delegation approach, which have been largely ignored in the EA fiscal governance framework, remain important in various member states. Using a two-way fixed effects panel data model for the EA countries during 2006-2018, we find that the delegation approach can be effective to improve the fiscal position. On the other hand, the imposition of centrally mandated common rules-based reforms has not taken into account the national political, social and institutional setting, and this may have also affected their effectiveness to achieve fiscal discipline. Our findings thus suggest a reconsideration of the one-size-fits-all, rules-based approach to fiscal governance in the EA.