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European economic governance: the Berlin–Washington Consensus

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  • Jean-Paul Fitoussi
  • Francesco Saraceno

Abstract

This paper argues that the European Union (EU) has gone further than any other country or institution in internalising the prescriptions of the Washington Consensus. Embedding neoliberal principles in the treaties defining its governance, the EU has enshrined a peculiar doctrine within its constitution. We further argue that this 'Berlin–Washington 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 2009, putting unwarranted emphasis on austerity and reform. Challenging the Consensus becomes a precondition for avoiding the implosion of the euro and recovering growth. Copyright , Oxford University Press.

Suggested Citation

  • Jean-Paul Fitoussi & Francesco Saraceno, 2013. "European economic governance: the Berlin–Washington Consensus," Cambridge Journal of Economics, Oxford University Press, vol. 37(3), pages 479-496.
  • Handle: RePEc:oup:cambje:v:37:y:2013:i:3:p:479-496
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    File URL: http://hdl.handle.net/10.1093/cje/bet003
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    More about this item

    JEL classification:

    • E02 - Macroeconomics and Monetary Economics - - General - - - Institutions and the Macroeconomy
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy

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