Challenges for International Economic Policy Coordination in EMU: Institutional Setting, Financial Market Reactions and the Importance of Systemic Risk

The launch of the euro and, with it, the institutional framework that has been established are raising a number of important issues for the co-ordination of policies, not only within EMU, but also with countries outside the euro area. This paper looks at some of the challenges that the institutions and processes put in place for conducting policy in the euro area pose for international co-ordination. More precisely, it assesses whether there are risks that the new institutional arrangements may generate more imbalanced policies than earlier, thereby creating negative international spillovers. This paper also discusses whether these arrangements may create new systemic risks in international financial markets.Counsellor for Macroeconomic Policies