In what follows, I will describe how I see the changes that we need to push forward in the two key areas of economic governance where negative externalities are important: fiscal policy coordination and financial stability. A New Fiscal Framework The deficiencies of the Stability and Growth Pact have been well documented elsewhere.
To a large extent, fiscal policy is guided by variables that cannot be observed and cannot be estimated in realtime, with any precision, due to data, sampling, and model uncertainty, many times allowing for procyclical episodes. Indeed, a good deal of research has shown that estimates of key inputs such as the output gap,suffer from substantial measurement problems.