MADRID — European leaders have been confronting their continent’s debt crisis by pushing for new limits on how much borrowing countries can do, part of a trend across much of the world toward balanced budget amendments and similar restrictions.
But economists say there is scant evidence that such constraints do much good.
Sept. 2 (Bloomberg) -- Czech Republic President Vaclav Klaus discusses the euro-region debt crisis and the outlook for the common currency. He speaks from Cernobbio, Italy, with Andrea Catherwood on Bloomberg Television's "Last Word."
About 80 countries have imposed legal limits on how much their politicians can spend, tax or borrow. In a handful of cases, they have written restrictions into their constitutions. Germany did that in 2009, and Spain is headed the same way after its lower house of parliament Friday approved a balanced budget amendment. France is also considering the idea.
French President Nicolas Sarkozy and German Chancellor Angela Merkel have recommended similar measures for all 17 nations that share the euro currency as the region battles a crisis over public debt that is putting its financial system — and the entire monetary union — at risk.
The track record of these fiscal rules has been mixed, even as they have become more widespread over the past 15 years, according to studies by the International Monetary Fund and others.
Most prevalent in Europe, these restrictions are also a feature of currency unions in the Caribbean and parts of Africa. Some get good grades. A Swiss constitutional amendment helped the country control debt that was rising during economic stagnation in the 1990s, analysts conclude. A Chilean set of laws is also well regarded for insulating the government budget from swings in the price of copper. So is an Australian program that requires officials to budget in four-year cycles and keep their accounts balanced over time.
Other experiences have been disappointing. Germany is trying a constitutional amendment for the second time after finding that its initial one in the 1980s did not prevent debt from rising over time. Japan, which is rare among Asian countries for having a legal debt limit, has waived the law virtually every year since 1947 and has run up more debt relative to the size of its economy than any other country.
The issue of stricter budget rules has been a perennial one in the United States. The government’s debt ceiling was always raised to accommodate borrowing until this year, when a standoff over the limit almost prompted a federal default. Meanwhile, Republican lawmakers have continued to push for a balanced budget amendment to the constitution.
The IMF has concluded that fiscal limits can help focus public attention on the need for budgeting discipline but won’t stand in the way if a politician wants to find a work-around.
“The use of fiscal rules is on average associated with improved fiscal performance,” the IMF concluded in a 2009 survey. The study said rules can help frame public expectations, give politicians a rationale for unpopular decisions and boost a country’s standing among investors.
But the IMF and others who have studied the issue say that it is hard to tell whether fiscal rules on their own do any good. They became more common in the 1990s, often adopted during or directly after a debt or public spending crisis. The IMF found that they may simply reflect a nation’s newfound “fiscal rectitude” — serving less as a constraint on public decisions than as a statement of what a society has decided it should do anyway.
The Post Most: BusinessMost-viewed stories, videos and galleries int he past two hours
World Markets from
Other Market Data from
Key Rates from
Loading...
Comments