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The Future of the Euro: Is There an Alternative to the Stability and Growth Pact?

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  • Philip Arestis
  • Kevin McCauley
  • Malcolm Sawyer

Abstract

This brief provides a detailed description of the Stability and Growth Pact, an agreement entered into by the member states of the European Union that has far-reaching implications for the long-run value of the euro, and therefore, on the real economy in terms of output growth and employment. Yet despite the fact that the pact underpins the adoption of the single currency and has fundamentally redefined the scope and nature of economic policy making in the member states, public discussion about it is relatively scant, especially on our side of the Atlantic, even though the economic health of the European Union does matter to the economic and strategic position of the United States. The authors provide propose a critique of the pact that focuses on the shortcomings induced by the its regime of mandatory fiscal austerity, the separation between fiscal and monetary policy, the undemocratic structure and lack of accountability of the European Central Bank, and the paramount importance attached to price stability at the expense of other policy objectives. According to the authors, these shortcomings will have serious negative effects on the current and future economic performance of the member states and the material well-being of its citizens.

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Bibliographic Info

Paper provided by Levy Economics Institute in its series Economics Public Policy Brief Archive with number ppb_63.

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Handle: RePEc:lev:levppb:ppb_63

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Cited by:
  1. Alex Izurieta, 2001. "Can Countries under A Common Currency Conduct Their Own Fiscal Policies?," Macroeconomics, EconWPA 0108008, EconWPA.
  2. Thierry Warin, 2005. "The Hidden Structural Features of the Fiscal Rule: A European Saga," International Advances in Economic Research, Springer, Springer, vol. 11(1), pages 29-38, March.
  3. Paolo Biraschi, . "Searching for the optimal EMU fiscal rule:an ex-post analysis of the SGP reform proposals," Working Papers, Department of the Treasury, Ministry of the Economy and of Finance wp2008-7, Department of the Treasury, Ministry of the Economy and of Finance.

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