Fiscal consolidation in the euro area: How much pain can structural reforms ease?

The IMF's Global Integrated Monetary and Fiscal model (GIMF) is used to examine the scope for structural reforms in the euro area to offset the negative impact of fiscal consolidation required to put public debt back on a sustainable path. The results suggest that structural reforms in core countries could be expected to offset the near-term negative impact on activity arising from the required fiscal consolidation. However, for the periphery, the results suggest that it would take several years before structural reforms could return the level of output back to its pre-consolidation path.