Is Europe Doomed to Stagnation? An Analysis of the Current Crisis and Recommendations for Reforming Macroeconomic Policymaking in Euroland

Joerg Bibow
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Joerg Bibow: University of Hamburg Germany and The Levy Economics Institute

General Economics and Teaching from EconWPA

Abstract: This paper challenges the view that external shocks caused Euroland's 2001 slowdown and subsequent stagnation. Instead, the design of Euroland's macro policymaking arrangements is found lacking in looking after sufficient domestic demand growth. In the event the ECB has failed on its stabilization role—a rather vital role given that fiscal policy is severely constrained by the Stability and Growth Pact. As a result, Europe is in a precarious situation of stagnation today, and under the current regime there is even a risk of self-reinforcing destabilization. Hence, reforming the regime is urgent. A nominal GDP target to be pursued by fiscal and monetary policies in cooperation would provide Europe with the growth anchor that is currently missing.

Keywords: policy design and consistency; stabilization policy; policy coordination (search for similar items in EconPapers)
JEL-codes: E61 E63 E65 E66 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-eec and nep-fin
Date: 2003-06-05
Note: Type of Document - word perfect; prepared on PC; to print on HP/PostScript; pages: 52 ; figures: included

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Persistent link: http://EconPapers.repec.org/RePEc:wpa:wuwpgt:0306002

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