Co-ordinating Stability: Some Remarks on the Roles of Monetary and Fiscal Policy under EMU

The launch of Monetary Union in Europe has prompted calls for enhanced policy co-ordination among economic policy-makers. This paper sounds a note of caution and argues that the problem of policy co-ordination needs to be placed in the broader context of the efficient assignment of tasks and responsibilities among separate actors. In the presence of incentive and information problems, overly ambitious attempts at EXPLICIT forms of policy co-ordination may actually turn out to undermine the IMPLICIT co-ordination properties of the clear division of responsibilities enshrined in the Maastricht Treaty. A single monetary policy that is credibly geared to the maintenance of price stability and national fiscal policies that genuinely accept the constraints of the Stability and Growth Pact already go a long way in securing macroeconomic stability. Additional channels for dialogue among policymakers should be helpful to the extent that they enhance the understanding of individual responsibilities and do not dilute accountability.