In this context, it is of some comfort that – in part thanks to the European fiscal framework – the aggregate euro area government deficit is currently significantly lower than that of most other major economies. But this is only limited comfort.
Prompt action to bring the fiscal house in order is necessary so that high and increasing levels of government debt do not jeopardise longer-term growth prospects. The next crisis must not be a sovereign debt crisis! The key issue for fiscal policy at this juncture is not “whether” but “how much” and “how soon” to start fiscal consolidation.