Europe’s economic institutions: Stability- or growth-oriented?

The paper deals with various aspects of the performance, especially from a macroeconomic point of view, expected from some of the most relevant European institutions (monetary and tax authorities, unions) vis-à-vis alternative ones. The role of the rules (e.g. the Stability and Growth Pact) as a coordination device to deal with externalities arising from national fiscal policies is first considered and compared to explicit coordination. The priority given to price stability is then discussed together with the questions of reputation, credibility and the relationship with fiscal policy and labour markets. A conservative central bank eliminates the temptation to inflate, but is only a second- best solution for internalizing the externalities arising from uncoordinated-wage bargaining. The paper finally discusses the consequences on growth of the stability pursued by actual European institutions. Some reflections on the ‘model’ adopted for shaping European institutions conclude the paper.