European economic governance: the Berlin-Washington consensus

Jean-Paul Fitoussi and Francesco Saraceno

No 2012-20, Documents de Travail de l'OFCE from Observatoire Francais des Conjonctures Economiques (OFCE)

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.

Keywords: Washington consensus; Neoclassical theory; Austerity; Structural reforms; Fiscal policy; Monetary policy; EU governance; ECB; Stability and growth pact; Fiscal compact (search for similar items in EconPapers)
JEL-codes: E02 E32 E58 E62 E63 (search for similar items in EconPapers)
Date: 2012-06
New Economics Papers: this item is included in nep-eec, nep-mac and nep-pke
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Journal Article: European economic governance: the Berlin–Washington Consensus (2013)
Working Paper: European economic governance the Berlin-Washington consensus (2012)
Working Paper: European economic governance the Berlin-Washington consensus (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:fce:doctra:1220

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