With the current sovereign debt crisis, the incompleteness of economic integration in the Economic and Monetary Union (EMU) has become patent, leading to an intense debate among academics and policy makers. Much of the debate concerns fiscal rules and austerity measures, both of which weigh on growth prospects. In this paper we look at the main structural shortcomings of EMU through the lens of general equilibrium theory. We address two issues (international sharing of macroeconomic risks and coordinated growth stimulation) which are at the heart of the sustainability of EMU. We propose: (A) a specific scheme for mutual insurance of macroeconomic risks; (B) locating responsibility for demand policies at the EMU level, with ambitious investment programs (public, or fiscally-neutral private) as main instrument.

The future evolution of energy supply technologies strongly depends on (and affects) theeconomic and environmental systems, due to the high dependency of this sector on theavailability and cost of fossil fuels, especially on the small regional scale. This paperaims at presenting the modeling system and preliminary results of a research projectconducted on the scale of Luxembourg to assess the environmental impact of future energyscenarios for the country, integrating outputs from partial and computable generalequilibrium models within hybrid Life Cycle Assessment (LCA) frameworks. The generalequilibrium model for Luxembourg, LUXGEM, is used to evaluate the economic impacts ofpolicy decisions and other economic shocks over the time horizon 2006−2030. A techno-economic (partialequilibrium) model for Luxembourg, ETEM, is used instead to compute operation levels ofvarious technologies to meet the demand for energy services at the least cost along thesame timeline. The future energy demand and supply are made consistent by coupling ETEMwith LUXGEM so as to have the same macro-economic variables and energy shares driving bothmodels. The coupling results are then implemented within a set of Environmentally-ExtendedInput-Output (EE-IO) models in historical time series to test the feasibility of theintegrated framework and then to assess the environmental impacts of the country.Accordingly, a disaggregated energy sector was built with the different ETEM technologiesin the EE-IO to allow hybridization with Life Cycle Inventory (LCI) and enrich the processdetail. The results show that the environmental impact slightly decreased overall from2006 to 2009. Most of the impacts come from some imported commodities (natural gas, usedto produce electricity, and metalliferous ores and metal scrap). The main energyproduction technology is the combined-cycle gas turbine plant “Twinerg”, representingalmost 80% of the domestic electricity production in Luxembourg. In the hybrid EE-IOmodel, this technology contributes to around 7% of the total impact of the country’s netconsumption. The causes of divergence between ETEM and LUXGEM are also thoroughlyinvestigated to outline possible strategies of modeling improvements for future assessmentof environmental impacts using EE-IO. Further analyses focus first on the completion ofthe models’ coupling and its application to the defined scenarios. Once the coupling isconsistently accomplished, LUXGEM can compute the IO flows from 2010 to 2030, while theLCI processes in the hybrid system are harmonized with ETEM to represent the futuredomestic and imported energy technologies.

The paper studies the effects of an expansionary fiscal policy in a general equilibrium model of a small open economy. Households are assumed to possess habit-forming, endogenous rates of time preference. In response to fiscal shocks, the model generates cyclical endogenous persistence and procyclical time paths for consumption, employment, and investment, as well as a countercyclical path for the current account. Furthermore, fiscal shocks are shown to have positive long-run effects on output and negative long-run effects on consumption.