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European economic governance: the Berlin-Washington consensus

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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.

Suggested Citation

  • Jean-Paul Fitoussi & Francesco Saraceno, 2012. "European economic governance: the Berlin-Washington consensus," Documents de Travail de l'OFCE 2012-20, Observatoire Francais des Conjonctures Economiques (OFCE).
  • Handle: RePEc:fce:doctra:1220
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    File URL: http://www.ofce.sciences-po.fr/pdf/dtravail/WP2012-20.pdf
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    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Should Paris Go East?
      by Francesco Saraceno in Sparse Thoughts of a Gloomy European Economist on 2012-12-06 19:55:56
    2. LE RIFORME: MUCH €URO-DO ABOUT NOTHING (mantra anti-illuminazione)
      by Quarantotto in Orizzonte48 on 2014-10-07 00:05:00

    Citations

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    Cited by:

    1. Campiglio, Luigi Pierfranco, 2015. "Employment and the “Investment Gap”: An Econometric Model of European Imbalances," MPRA Paper 64113, University Library of Munich, Germany.
    2. Serranito, Francisco, 2015. "Dévaluation interne, politiques structurelles et réductions des déficits publics : les réponses apportées par la « troïka » sont-elles un remède aux déséquilibres externes des pays périphériques de la," Revue de la Régulation - Capitalisme, institutions, pouvoirs, Association Recherche et Régulation, vol. 18.
    3. Saraceno, Francesco., 2015. "Challenges for the ECB in times of deflation," ILO Working Papers 994881293402676, International Labour Organization.
    4. Alberto Botta, 2014. "Structural asymmetries at the roots of the eurozone crisis: what's new for industrial policy in the EU?," PSL Quarterly Review, Economia civile, vol. 67(269), pages 169-216.
    5. L. Giordano & A. Lopes, 2016. "Monetary Policy, Credit and Territorial Imbalances in Europe in Crisis Times," Rivista economica del Mezzogiorno, Società editrice il Mulino, issue 1, pages 121-176.
    6. Jean-Paul Fitoussi & Francesco Saraceno, 2014. "Drivers of inequality: Past and present challenges for Europe," Sciences Po publications info:hdl:2441/2q6hk56t1k8, Sciences Po.
    7. Michal Jurek & Pawel Marszalek, 2015. "Policy alternatives for the relationship between ECB monetary and financial policies and new member states," Working papers wpaper112, Financialisation, Economy, Society & Sustainable Development (FESSUD) Project.
    8. repec:beo:journl:v:62:y:2017:i:215:p:7-52 is not listed on IDEAS
    9. repec:ilo:ilowps:488129 is not listed on IDEAS
    10. Dragomirescu-Gaina, Catalin & Philippas, Dionisis, 2015. "Strategic interactions of fiscal policies in Europe: A global VAR perspective," Journal of International Money and Finance, Elsevier, vol. 59(C), pages 49-76.
    11. ViniÌ cius de Azevedo Couto Firme & JoaniÌ lio Rodolpho Teixeira, 2014. "Index of Macroeconomic Performance for a Subset of Countries: A Kaldorian Analysis from the Magic Square Approach Focusing on Brazilian Economy in the Period 1997-2012," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 61(5), pages 527-542, October.
    12. Fernando Luengo Escalonilla & Lucía Vicent Valverde, 2014. "Encrucijadas de la moneda única: Algunas claves para una reflexión desde la periferia," Policy Papers del Instituto Complutense de Estudios Internacionales 14-01, Universidad Complutense de Madrid, Instituto Complutense de Estudios Internacionales.
    13. Francesco Saraceno, 2016. "The ECB: a reluctant leading character of the EMU play," Economia Politica: Journal of Analytical and Institutional Economics, Springer;Fondazione Edison, vol. 33(2), pages 129-151, August.

    More about this item

    Keywords

    Washington consensus; Neoclassical theory; Austerity; Structural reforms; Fiscal policy; Monetary policy; EU governance; ECB; Stability and growth pact; Fiscal compact;

    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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