The output gap is the trojan horse of the fiscal compact

Romania, via its president, has adhered wholeheartedly to the euro area fiscal compact. To sell the story the Romanian officials are presenting this version of the rules based fiscal policy as a panacea to the chronic fiscal policy problems of this country. And to make the story stick “friendly” economists are presenting only the benefits of such a policy. Thus, it gives me great pleasure to show you the dangers of such a policy especially for the private sector.