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Macroeconomic Stabilisation in the Eurozone: Lessons from Failure

Macroeconomic Stabilisation in the Eurozone: Lessons from Failure Three forms of macroeconomic stabilisation in the eurozone are considered: national macroeconomic stabilisation, debt discipline and eurozone‐wide macroeconomic stabilisation. The eurozone started with an architecture that ignored the first, which it hoped – despite advice to the contrary – would look after itself. This article explores what subsequently happened before the financial crisis, during the Great Recession and after 2010. It argues that the failure to address the issue of national macroeconomic stabilisation was a crucial factor behind what became an existential crisis for the eurozone. However, the crisis has a silver lining. The rationale behind union‐wide controls to limit fiscal deficits (the SGP and now the Fiscal Compact) no longer exists. Since 2010 it has become clear that eurozone members face greater market discipline on fiscal deficits than do countries with their own currency. As a result, fiscal controls and institutions to support them can and should reside at the national level, and can therefore focus on national stabilisation as well as the more long‐term control of government debt. It is argued that this alternative to the current architecture is both more feasible and more desirable than a move towards fiscal union. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Global Policy Wiley

Macroeconomic Stabilisation in the Eurozone: Lessons from Failure

Wren‐Lewis, Simon
Global Policy , Volume 4 – Jul 1, 2013
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References (28)

Publisher
Wiley
Copyright
Copyright © 2013 © University of Durham and John Wiley & Sons, Ltd
ISSN
1758-5880
eISSN
1758-5899
DOI
10.1111/1758-5899.12048
Publisher site
See Article on Publisher Site

Abstract

Three forms of macroeconomic stabilisation in the eurozone are considered: national macroeconomic stabilisation, debt discipline and eurozone‐wide macroeconomic stabilisation. The eurozone started with an architecture that ignored the first, which it hoped – despite advice to the contrary – would look after itself. This article explores what subsequently happened before the financial crisis, during the Great Recession and after 2010. It argues that the failure to address the issue of national macroeconomic stabilisation was a crucial factor behind what became an existential crisis for the eurozone. However, the crisis has a silver lining. The rationale behind union‐wide controls to limit fiscal deficits (the SGP and now the Fiscal Compact) no longer exists. Since 2010 it has become clear that eurozone members face greater market discipline on fiscal deficits than do countries with their own currency. As a result, fiscal controls and institutions to support them can and should reside at the national level, and can therefore focus on national stabilisation as well as the more long‐term control of government debt. It is argued that this alternative to the current architecture is both more feasible and more desirable than a move towards fiscal union.

Journal

Global Policy – Wiley

Published: Jul 1, 2013

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