Fiscal stability and dynamics in the Eurozone

The long-term balance between fiscal efforts of stabilisation and necessary growth to obtain full capacity is the issue must be the focus of the discussion of economic policy by the countries in the Eurozone. Labour market reforms to create flexibility is important, and necessary, but not sufficient. To make labour market reforms feasible they must also be supported by short run measures to create flexibility in economic policy to stabilize demand on a steady state growth path. By the help of an elementary economic transformation model, it is possible to show that fiscal efforts of stabilisation in the Eurozone can be a threat against economic transformation itself, and hence, growth.