The economic recovery plans

Economic recovery plans make up a important part of the wide-ranging package of measures that economic policy-makers worldwide have taken in response to the financial and economic crisis. More specifically, the EU Member States have either approved or announced fiscal measures to boost economic growth amounting to a total of 1.1 p.c. of GDP in 2009 and 0.7 p.c. of GDP in 2010 for the EU as a whole. In the United States, the cumulative budgetary cost of the recovery measures over 2009 and 2010 should reach 5.4 p.c. of GDP. However, fiscal support for economic activity through the automatic stabilisers is greater in the EU than in the US. A comparison of policy responses, as regards both the scope and composition of the recovery plans, shows that there are significant divergences amongst the EU Member States themselves. Differences in terms of the extent of the recovery plans are in accordance with the European economic recovery plan’s call for account to be taken of differences in initial budgetary positions when drafting the national plans. Moreover, the European recovery plans consist of a wide range of measures, which, on the whole, are quite evenly distributed over the revenue and expenditure sides of the equation. The growth-supporting measures may be able to ease the recession in the short term, but the impact they will have is uncertain and possibly even fairly limited. An optimum effect of the recovery plans on economic growth in the short term would only really be reached if a number of preconditions are met first. So it is clear that the growth-stimulating measures need to be timely, temporary and targeted, conditions that are not always met. Furthermore, the effectiveness of the measures taken is to a large extent determined by the reactions from private economic agents. In this respect, an essential precondition is for there to be no doubt about the sustainability of government finances over the long run. However, combined with the already weak budget positions that some countries had to start with, the economic recovery plans and the effect that the recession has on the budget situation via the relatively large automatic stabilisers have seriously affected the state of public finances in many countries.fiscal stimulus, financial and economic crisis, EERP (European Economic Recovery Plan

Interregional transfers and solidarity mechanisms via the government budget

The article examines transfers between regions via the central government budget, referring essentially to the regional household accounts published by the National Accounts Institute. It examines only the aspects concerning allocation between the regions of that part of government revenue and expenditure for which there is no direct counter-consideration. The Flemish Region is currently a net contributor to transfers between regions via the central government budget, whereas the Walloon Region is a net recipient. The Brussels Capital Region also makes a net contribution, though only a small one. These transfers between regions are due largely to variations in the contributions of each region to government revenues. In the case of households, the contribution of the Flemish Region exceeds that of the other two regions; for businesses, it is the Brussels Capital Region that makes the largest contribution. In addition, these transfers originate from the regional allocation of social benefits. Thus, unemployment benefits entail transfers from the Flemish Region to the Walloon Region and the Brussels Capital Region. In contrast, transfers between the regions via pensions currently favour the Flemish Region. In regard to health care expenditure, there are hardly any transfers between the regions at present. Projections also show the importance of both the expected demographic trends and labour market developments for the future pattern of transfers between regions. The influence of demographic trends is most favourable for the Brussels Capital Region and least favourable for the Flemish Region. This is likely to increase the net contribution from the former while the latter’s net contribution will decline, even if the current labour market divergences largely persist in the future. In contrast, in the event of full convergence of employment levels, the inter-regional transfers paid by the Flemish Region would actually disappear altogether, and the Brussels Capital Region would become the sole net contributor, though in that case the inter-regional transfers received by the Walloon Region would decline sharply. Finally, international comparison shows that transfers between regions are relatively small in Belgium, compared to what is seen in other EU Member States.regions, transfers, solidarity mechanisms

Fiscal sustainability and policy implications for the euro area.

In this paper we examine the sustainability of euro area public finances against the backdrop of population ageing. We critically assess the widely used projections of the Working Group on Ageing Populations (AWG) of the EU's Economic Policy Committee and argue that ageing costs may be higher than projected in the AWG reference scenario. Taking into account adjusted headline estimates for ageing costs, largely based upon the sensitivity analysis carried out by the AWG, we consider alternative indicators to quantify sustainability gaps for euro area countries. With respect to the policy implications, we assess the appropriateness of different budgetary strategies to restore fiscal sustainability taking into account intergenerational equity. Our stylised analysis based upon the lifetime contribution to the government's primary balance of different generations suggests that an important degree of pre-funding of the ageing costs is necessary to avoid shifting the burden of adjustment in a disproportionate way to future generations. For many euro area countries this implies that the medium-term targets defined in the context of the revised stability and growth pact would ideally need to be revised upwards to significant surpluses.Population Ageing ; Fiscal Sustainability ; Generational Accounting ; Medium-term Objectives for Fiscal Policy