The Euro Area Expanded Under Public Fiscal Policy Sustainability

More and more countries will join in the Euro-area after the EU's eastern expansion. The member countries must comply with the fiscal rules in the Maastricht Treaty and the Stability and Growth act. However, the fiscal rules are questioned by some scholars due to the sluggish economic growth and rising unemployment in recent years, someone even consider the existence of fiscal rules as the shackles of economic growth. Consequently, some economists and scholars put forward the proposed reforms of fiscal rules and coordination of fiscal and monetary policies. The dissertation analyses the plights and risks what the old and new member countries are facing respectively. In view of these present and potential risks, the author emphasized the importance and operational mechanisms of the sustainability of public finances. Firstly, some papers about the necessity of fiscal rules are studied. Secondly, we emphasize the present and potential risks faced by the Euro-area member countries and central and eastern countries respectively. Finally, we point out the importance of the sustainability of public finances for member countries in EU.According to the above analysis, we find out that the reason of downturn economic growth in Euro-area is not the fiscal rules, but the long-term lower elasticity of labor market and higher labor costs resulted by higher social welfares. As for the new member countries, they are facing the Balassa-Samuelson effects and difficulties led by the conflict between the nominal and real convergence criterion. In a word, the EU member countries should consolidate the budget and adjust the structure of expenditure and revenue to achieve the long-term sustainability of public finances.