After exhausting monetary policy, is the euro zone set to exhaust fiscal policy?
The euro zone has exhausted all monetary policy space. It still has fiscal policy space, particularly in Germany, but the pressure is strong to use this space as well, and we see that Germany is starting to give in to this pressure. There are then two scenarios: The positive scenario is the one where the more expansionary fiscal policy consists in making efficient investments that will increase potential GDP in the euro zone; The negative scenario is the one where the more expansionary fiscal policy has no impact on potential GDP in the euro zone, for example because it consist s in current fiscal deficits, and where the euro zone finds itself with a complete lack of economic policy space and where potential growth (and the level of potential GDP) is just as low.