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EMU in the Early Years: Differences and Credibility

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  • Buti, Marco
  • Sapir, André

Abstract

The main issue in the early years of EMU is one of credibility. On one hand, high exposure to asymmetric shocks and low adaptability (be it in terms of stabilization or adjustment) to both symmetric and asymmetric shocks make the early years of EMU potentially problematic. On the other hand, significant economic differences between EMU countries raise questions regarding the objective of price stability. Credibility-enhancing policy choices may, in the short run, conflict with optimal smoothing of shocks, but are essential to ‘ferry’ EMU towards its ‘steady state’. While a number of uncertainties still hang over the new regime, the Paper finds that the experience of EMU so far is heartening. Although economic divergences skewed on the high side made internal monetary misalignments politically less troublesome, the stability-oriented EMU framework fostered broadly appropriate policy behaviour in terms of both efforts to increase adaptability to shocks and of actual response to observed shocks.

Suggested Citation

  • Buti, Marco & Sapir, André, 2001. "EMU in the Early Years: Differences and Credibility," CEPR Discussion Papers 2832, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:2832
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    Citations

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    Cited by:

    1. Francesco Saraceno & Paola Veroni, 2005. "Reform of the Stability and Growth Pact: Reducing or Increasing the Nuisance," Sciences Po publications 2005-1, Sciences Po.
    2. Carlos Martinez-Mongay & Khalid Sekkat, 2005. "Progressive Taxation, Macroeconomic Stabilization and efficiency in Europe," European Economy - Economic Papers 2008 - 2015 233, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
    3. MARTINEZ-MONGAY Carlos & SEKKAT Khalid, "undated". "The Tradeoff between Efficiency and Macroeconomic Stabilization in Europe," EcoMod2003 330700095, EcoMod.
    4. Tilman Brück & Andreas Cors & Klaus F. Zimmermann & Rudolf Zwiener, 2002. "Stability Criteria and Convergence: The Role of the System of National Accounts for Fiscal Policy in Europe," Discussion Papers of DIW Berlin 318, DIW Berlin, German Institute for Economic Research.
    5. Richard Hule & Matthias Sutter, 2003. "Can the Stability and Growth Pact in EMU Cause Budget Deficit Cycles?," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 30(1), pages 25-38, March.
    6. Marco Buti & Sylvester Eijffinger & Daniele Franco, 2003. "Revisiting the Stability and Growth Pact: grand design or internal adjustment?," European Economy - Economic Papers 2008 - 2015 180, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
    7. Marco Buti & Carlos Martinez-Mongay & Khalid Sekkat & Paul van den Noord, 2003. "Automatic Fiscal Stabilisers in EMU: A Conflict between Efficiency and Stabilisation?," CESifo Economic Studies, CESifo, vol. 49(1), pages 123-140.
    8. Konrad Szelag, 2008. "A Single Fiscal Policy in the Euro Area: Vision or Utopia?," NBP Working Papers 46, Narodowy Bank Polski, Economic Research Department.

    More about this item

    Keywords

    EMU; Exposure and Adaptability to Shocks; Fiscal and Monetary Policy; Policy Coordination;

    JEL classification:

    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • 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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