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Learning from the past: fiscal adjustments on the run-up to the euro area
This paper examines the fiscal adjustments that took place on the run-up to the euro area. OECD data are used to identify and characterize episodes of fiscal consolidation in a broad set of countries and within the 1980-2008 time-frame, but focusing, in particular, on those corresponding to the founding Member-states of the euro area and to the 1993-1997 period. Results suggest that, on the period prior to the inception of the euro area, cyclical and interest rate conditions made it easier to comply with the Maastricht criteria without requiring strong primary expenditure cuts, particularly as regards sensitive items such as social transfers and compensation of employees. This may explain why none of the fiscal adjustments identified in 1993-1997 in countries that would become members of the euro area was successful in persistently reducing public debt ratios.