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European economic governance the Berlin-Washington consensus

Author

Listed:
  • Jean-Paul Fitoussi

    (OFCE - Observatoire français des conjonctures économiques - Sciences Po - Sciences Po)

  • Francesco Saraceno

    (OFCE - Observatoire français des conjonctures économiques - Sciences Po - Sciences Po)

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," Working Papers hal-00973083, HAL.
  • Handle: RePEc:hal:wpaper:hal-00973083
    Note: View the original document on HAL open archive server: https://hal-sciencespo.archives-ouvertes.fr/hal-00973083
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    Full references (including those not matched with items on IDEAS)

    Citations

    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
    3. Wanted: German Inflation
      by Francesco Saraceno in Sparse Thoughts of a Gloomy European Economist on 2014-03-07 04:00:13
    4. Ancora dieci anni di crisi per riequilibrare l’eurozona?
      by keynesblog in Keynes Blog on 2014-03-07 20:30:38
    5. EMU Troubles: The Narrow Way Out
      by Francesco Saraceno in Sparse Thoughts of a Gloomy European Economist on 2015-09-18 14:43:00

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    2. Campiglio, Luigi Pierfranco, 2015. "Employment and the “Investment Gap”: An Econometric Model of European Imbalances," MPRA Paper 64113, University Library of Munich, Germany.
    3. 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.
    4. Emiliano Brancaccio & Fabiana De Cristofaro & Raffaele Giammetti, 2020. "No Consensus In The Imf-Oecd 'Consensus': A Meta-Analysis On The Employment Impact Of Labour Deregulations," Working Papers 445, Universita' Politecnica delle Marche (I), Dipartimento di Scienze Economiche e Sociali.
    5. Saraceno, Francesco., 2015. "Challenges for the ECB in times of deflation," ILO Working Papers 994881293402676, International Labour Organization.
    6. Dosi, Giovanni & Pereira, Marcelo C. & Roventini, Andrea & Virgillito, Maria Enrica, 2018. "The labour-augmented K+S model: a laboratory for the analysis of institutional and policy regimes," GLO Discussion Paper Series 241, Global Labor Organization (GLO).
    7. Francesco Saraceno, 2017. "Rethinking fiscal policy : lessons from the european monetary union," Sciences Po publications 219, Sciences Po.
    8. 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.
    9. 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.
    10. Jean-Paul Fitoussi & Francesco Saraceno, 2014. "Drivers of inequality: Past and present challenges for Europe," Sciences Po publications info:hdl:2441/2q6hk56t1k8, Sciences Po.
    11. Peter Howard-Jones & Jens Hölscher, 2020. "The Influence Of The Washington Consensus Programme On The Transitional Economies Of Eastern Europe – A Firm-Level Analysis," Economic Annals, Faculty of Economics, University of Belgrade, vol. 65(226), pages 9-44, July – Se.
    12. 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.
    13. Giovanni Dosi & Andrea Roventini, 2019. "More is different ... and complex! the case for agent-based macroeconomics," Journal of Evolutionary Economics, Springer, vol. 29(1), pages 1-37, March.
    14. Sanja Franc & Antea Barišić & Zoran Wittine, 2020. "The Dilemma over Washington Consensus Guidelines or Industrial Policy: Lessons from Croatia," Notitia - journal for economic, business and social issues, Notitia Ltd., vol. 1(6), pages 49-62, December.
    15. Ramona Coman & Amandine Crespy & Frederik Ponjaert & Vivien Schmidt & Pierre Vanheuverzwijn, 2016. "Issue on EU Economic Governance," CEVIPOL Working Papers 5, ULB -- Universite Libre de Bruxelles.
    16. Brancaccio, Emiliano & Garbellini, Nadia & Giammetti, Raffaele, 2018. "Structural labour market reforms, GDP growth and the functional distribution of income," Structural Change and Economic Dynamics, Elsevier, vol. 44(C), pages 34-45.
    17. Peter Howard-Jones & Jens Hölscher & Dragana Radicic, 2017. "Firm Productivity In The Western Balkans: The Impact Of European Union Membership And Access To Finance," Economic Annals, Faculty of Economics, University of Belgrade, vol. 62(215), pages 7-52, October –.
    18. Giovanni Covi, 2021. "Trade imbalances within the Euro Area: two regions, two demand regimes," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 48(1), pages 181-221, February.
    19. repec:ilo:ilowps:488129 is not listed on IDEAS
    20. Martin Watts & Timothy Sharpe & James Juniper, 2014. "Reformation or exodus: Assessing the future of the Euro," The Economic and Labour Relations Review, , vol. 25(3), pages 465-483, September.
    21. 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.
    22. 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.
    23. 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.
    24. 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.

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    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;
    All these keywords.

    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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