The Future of Macroeconomic Policy in the European Union

Abstract

To make a presentation on the future of macroeconomic policy making in the EU is a daunting task. Until recently, this would have involved analysing macroeconomic developments in 15 countries. With the start of EMU in 1999, and now with the successful launch of the euro itself, the task looks, on the surface, a little easier — since the 12 countries of the euro area begin to look more like a macroeconomic entity: there is, after all, a single currency and a single monetary policy for the twelve, with only three countries (Sweden, Denmark and the UK) still outside. But even if one puts aside the position of the “outs”, the macroeconomic issues facing Europe are complex and unusual. A centralised monetary policy, determined by a constitutionally independent European Central Bank (the ECB), interacts with twelve different and politically independent fiscal authorities and twelve different labour markets. Even to describe the system in this way suggests that coordination issues, between a centralised monetary policy and national fiscal policies and between different countries’ labour market policies are likely to be at the heart of the European policy debate over the coming years.

I am extremely grateful to Bill Allen, Andrew Bailey, Nicoletta Batini, Wendy Carlin, Amit Kara, Richard Mash, Edward Nelson, David Vines, and Sushil Wadhwani and for their help and comments on this speech. The usual disclaimers apply. The views expressed are personal and should not be interpreted as those of the Bank of England or other members of the Monetary Policy Committee.