Committee for a Responsible Federal Budget

Carlo Cottarelli Joins the Announcement Effect Club

May 27, 2010 | Economics

You might have missed it yesterday, but during the second meeting of the National Commission on Fiscal Responsibility and Reform, IMF Director of Fiscal Affairs Carlo Cottarelli joined the Announcement Effect Club. Check around the 85 minute mark in the video for the key quotes such as this one:

"The most critical thing in my view is to eliminate the uncertainty about the future fiscal development....The markets must be confident that it is not just one year...but that it is a consistent policy. Many countries...have achieved this by strengthening their fiscal goals....There may be a possibility at looking at institutional changes to strengthen the fiscal framework and in this way make more certain the future of fiscal adjustments."

He used Germany as a prime example. They adopted a balanced budget amendment that stated the budget must be in balance by 2015. Cottarelli emphasized the fact that they didn't feel the need to make cuts immediately and risk undermining the economy, but they already put in place a fiscal goal to be reached when the economic conditions are right. This is a point we have been making for a while. Actual fiscal tightening does not have to happen now, but that does not mean we can't put a fiscal plan in place to take effect when the economy recovers; we suggest waiting until 2012.

Welcome to the Club, Carlo.