Initial conditions matter for fiscal policy.
Using a framework first laid out by our
global colleagues, we assess the fiscal
implications of country-specific conditions in
individual Euro-zone member states across
three dimensions—the likelihood of the
consolidation effort being sustained; the
impact on growth; and, the ‘optimality’ of
the speed of adjustment.   
While a large number of country-specific
factors are important in determining the
likelihood of a fiscal consolidation being
sustained, estimates based on past episodes
of fiscal tightening suggest that, if bond
spreads are high (and, therefore,
governments have a strong incentive to
implement consolidation plans) then the
probability of the government ‘staying the
course’ is also higher.