What is the euro zone’s fiscal space?

The recession that will result from the coronavirus crisis in the euro zone once again raises the question of the fiscal space of the euro zone and its member countries . Wherever the interest rate is lower than nominal growth, this question of the fiscal space does not arise: fiscal sustainability is always ensured. But if the interest rate is higher than nominal growth, there is a constraint on public finances: a temporary increase in the fiscal deficit must be limited or offset for the fiscal sustainability constraint to remain verified. Currently, the interest rate is higher than nominal potential growth in Italy (it is lower in the euro zone as a whole, Germany, France and Spain). Moreover, Italy has no fiscal space to increase its average fiscal deficit: if it increases it now, it will have to reduce it in the same proportions in the future. Either there will be fiscal solidarity with Italy, or Italy will really be in trouble.