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

Abstract

Only a few months into Stage Three of Economic and Monetary Union in Europe (EMU) the issue of policy co-ordination looms large both on the agenda of European policy makers and in the academic debate. Calls for enhanced policy co-ordination have long been a routine ingredient of Sunday speeches and summit declarations. One possible reason why the notion of co-ordination has proved attractive is the vagueness of the concept as used in the policy context. A second reason is that the term co-ordination usually carries a positive connotation. This is also a legacy of the academic literature, where — at least for the simple two player models used initially — co-ordination is “always good”, i.e. welfare improving, almost by definition. Both features, a lack of clarity of what is meant by co-ordination paired with an unreflected “pro co-ordination bias” are also present in the current European debate.

Submission to EMPIRICA as part of the VOWA workshop on policy co-ordination OeNB, Vienna, 22 January 1999.