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The New Medium-term Budgetary Objectives And The Problem Of Fiscal Sustainability After The Crisis

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Executive Summary

The paper analyses the Medium-Term Objectives (MTOs) recently adopted by the EU Member States as a reference for the multilateral budgetary surveillance, assessing the ability of the new MTOs to promote long-term fiscal sustainability. The paper calibrates the (yet undisclosed) algorithm for computing the minimum budgetary targets that EU countries can declare as MTO and discusses two novel features of the algorithm: a supplementary debt-reduction effort requested from high-debt countries, and the partial frontloading of the expected future increases in age-related expenditure -the cost of ageing-. The paper evaluates the impact of the crisis on EU countries' current as well as future MTOs through the channels of higher public debt, lower growth potential, and higher cost of ageing.

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