The decline of "natural real interest rates" during the last three decades is a common phenomenon in all advanced economies and can be explained by a number of structural factors: the downward trend in potential growth; population ageing, which has led to higher savings rates in many countries;...

The paper discusses the proposals of the EU Commission for the reform of the EU fiscal rules. Against the background of the devel-opment of the rules and the experience with the compliance, it becomes clear that the proposals represent a change of course. The decentral-iszed responsibility in...

An active role of fiscal policy has been rediscovered as a crisis remedy at the beginning of the financial crisis all over Europe. More recently, the Euro Crisis with its mounting governments' funding costs for a number of Southern EU member states and Ireland has called this strategy into...

With a unique data set summarizing the quality of rules-based fiscal governance in EU member states, we show that stronger fiscal rules in euro area members reduce sovereign risk premia, in particular in times of market stress. To do so, we develop a model of sovereign spreads that are...

We study the determinants of sovereign bond yield spreads across 10 EMU countries between Q1/1999 and Q1/2010. We apply a semiparametric time-varying coefficient model to identify, to what extent an observed change in the yield spread is due to a shift in macroeconomic fundamentals or due to...

We reassess the result of unsustainability of the euro with respect to inflation differentials claimed by Wickens (2007) by specifying an open-economy version of a two-region New Keynesian model for EMU and demonstrate that the result by Wickens does not hold in general. We are able to derive a...

The view is widespread that there are just two options for the future of the Eurozone - either it is complemented by a fiscal union, or it will fall apart. In this paper, we discuss five possible elements of a fiscal union, of which three are in the centre of the current debate on fiscal union...

After neutering the Stability and Growth Pact (SGP) in 2005, recent developments pinpoint that financial markets considerably discriminate between qualities of European governmental borrowers. In this article we inquire whether and to what extent political statements and decisions within the...