ABSTRACT
This chapter is about what can be improved in the policy system of the Eurozone. The issue of policy coordination in european monetary union has been a matter for discussion since the Delors report of 1989, which stated that national fiscal policies would have to abide by 'binding rules' that 'would permit the determination of an overall policy stance'. The chapter focuses on two main topics, fiscal discipline and policy coordination. The notion of fiscal discipline deals with the specific externalities associated to the adverse spillover effects of excessive deficits leading to potentially unsustainable debt accumulation in member countries. The emphasis of fiscal discipline should be shifted away from the year-by-year monitoring of the deficit to a more medium-term oriented approach that focuses on the long run sustainability of public finance. This could be done through offering member states the option to subscribe to a 'Debt Sustainability Pact'. The chapter describes the design of rules and to proposals for improvement.
