Euro Zone Needs Sovereign Default Risk to Rein In Fiscal Irresponsibility

According to Robin Brooks, the euro zone must allow for sovereign default risk in order to curb poor fiscal policy. Brooks argues that the current practice of the European Central Bank periodically intervening to cap yields undermines fiscal responsibility in member states such as France.

He warns that this approach creates incentives for unsustainable spending policies and reduces the likelihood of fiscal discipline. Brooks suggests that removing these interventions would lead to better fiscal discipline and reduce the incentives for poor fiscal policy.