Such a policy would contribute to ensuring that the conditions for long-term growth in the euro area are strengthened and to meeting the challenges arising from an ageing population. Empirical evidence supports the conclusion that comprehensive fiscal consolidation programmes, if appropriately designed and credible, can have favourable effects on confidence, investment conditions and thereby on output growth even in the short term.
From a financial stability perspective, the impact of “short-termism” and volatility of accounting information can be very detrimental as both may aggravate pro-cyclicality. This means more severe downturns and more acute building up of risks, resulting in a misallocation of resources that lead to an overall welfare loss for society.