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European economic governance the Berlin-Washington consensus

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  • Jean-Paul Fitoussi

    (OFCE)

  • Francesco Saraceno

    (OFCE)

Abstract

This paper argues that the European Union has gone farther than any other country or institution in internalizing the prescriptions of the Washington Consensus. Embedding neo-liberal principles in the treaties defining its governance, the EU has enshrined a peculiar doctrine within its constitution. We further argue that this “Berlin-Washinghton Consensus” has serious empirical and theoretical flaws, as its reliance on Pareto optimality leads to neglect the crucial links between current and potential growth. We show by means of a simple model that the call for structural reforms as an engine for growth may be controversial, once current and potential output are related. We claim that adherence to the Consensus may go a long way in explaining the poor growth performance of the European economy in the past two decades, because of the constraints that it imposed on fiscal and monetary policies. The same constraints have deepened the eurozone crisis that started in 2007, putting unwarranted emphasis on austerity and reform. Challenging the Consensus becomes a precondition for avoiding the implosion of the euro, and recovering growth.

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Bibliographic Info

Paper provided by Sciences Po in its series Sciences Po publications with number 2012-20.

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Date of creation: Jun 2012
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Handle: RePEc:spo:wpmain:info:hdl:2441/53r60a8s3kup1vc9k2c8h4u2h

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Related research

Keywords: washington consensus; Neoclassical theory; Austerity; Structural reforms; Fiscal policy; Monetary policy; EU Governance; ECB; Stability and growth pact; Fiscal compact;

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References

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  1. Jér�me Creel & Paola Monperrus-Veroni & Francesco Saraceno, 2009. "On The Long-Term Effects Of Fiscal Policy In The United Kingdom: The Case For A Golden Rule," Scottish Journal of Political Economy, Scottish Economic Society, vol. 56(5), pages 580-607, November.
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  7. Jean-Paul Fitoussi & Francesco Saraceno, 2004. "The Brussels-Frankfurt-Washington Consensus. Old and New Tradeoffs in Economics," Documents de Travail de l'OFCE, Observatoire Francais des Conjonctures Economiques (OFCE) 2004-02, Observatoire Francais des Conjonctures Economiques (OFCE).
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Citations

Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Wanted: German Inflation
    by Francesco Saraceno in Sparse Thoughts of a Gloomy European Economist on 2014-03-06 22:00:13
  2. Ancora dieci anni di crisi per riequilibrare l’eurozona?
    by keynesblog in Keynes Blog on 2014-03-07 14:30:38
  3. Should Paris Go East?
    by Francesco Saraceno in Sparse Thoughts of a Gloomy European Economist on 2012-12-06 13:55:56

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