An empirical study on fiscal sustainability in eurozone

Abstract

European crisis affected financial sustainability of Monetary Union countries negatively. Union countries are trying to alleviate the short term effects of the crisis on policy implementation. Whether union countries will ride out the crisis with short term policies can be examined by investigating their financial sustainability. The aim of this study was to examine the European Monetary Union member countries' financial viability. For this aim we use a balanced panel covering EMU 12 countries (Austria, Belgium, Finland, France, Germany, Luxemburg, Ireland, Portugal, Netherland, Italy, Greece, Spain) over the period 1995-2011. We analyzed the relationship between debt/GDP and primary surplus for panel causality covering EMU 12 countries. The results of the panel co-integration tests revealed that the variables are co-integrated. In other words there is statistically significant long-run relationship among the variables.