The Assessment: EMU, Four Years On |
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Authors: | Allsopp Christopher; Artis Michael J |
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Abstract: | This paper reviews the functioning of the Economic and MonetaryUnion over the first 4 years of its existence. Monetary policyis viewed as having been of the inflation-targetingtype, but with a tendency towards delay and conservatism inadjustment, which may also reflect over-optimistic output growthforecasts. The resulting pressure on the Stability and GrowthPact (SGP) illustrates the weakness in the consensusview of the harmonious interaction of monetary, fiscal,and supply-side policies, which requires policy in all threeareas to be correct. In discussing reform of theSGP, a looser but still constraining form of fiscal agreementis advocated. The supply-side and balance-of-payments issuesinvolved in inter-country adjustment also interact importantlywith the SGP and are identified as key areas of difficulty ina still immature monetary union, with separatelabour-market structures. Here the mechanisms for coordinationare more or less absent. |
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