Summary
Unemployment in the E.C. is tragically high compared with the average rate of 2–3% in the 1960s. Up to the early 1980s the rise may be justified by the need to end the inflationary spiral ignited by the two oil crisis. Thereafter, it is an unintended consequence of the fixed exchanges embraced in the march toward Maastricht. It forced a common interest rate level — in practice the exorbitant rates inposed by Germany since the mid-1980s. The suggested short-run remedy for the EMS, excluding Germany, is to cut rates sharply, maintaining fixed parities among themselves but letting the Mark float. In the longer run and until the day, if ever, that Maastricht is realized, one needs to ensure flexibility of the real exchange rate. With fixed nominal rates, this requires greater coordination of policies, especially wage policies.
This is a preview of subscription content, log in via an institution to check access.
Similar content being viewed by others
References
CEPR, 1 April 1995, ‘Unemployment: Choices for Europe,’ Center for Economic Policy Research (CEPR).
CEPR, 4 April 1995, ‘Why Is It so Difficult to Reduce Unemployment in Europe?,’ Center for Economic Policy Research (CEPR).
Drèze, J., 1995,Pour l'emploi la croissance et l'Europe, DeBoeck Université.
Drèze, J., and E. Malinvaud 1994, ‘Growth and Employment: The Scope for a European Initiative,’European Economy (Reports and Studies), 1, pp. 75–106.
Modigliani, F., 1972, ‘International Capital Movements, Fixed Parities, and Monetary and Fiscal Policies,’ in:Development and Planning: Essays in Honor of Paul Rosenstein-Rodan, London, George Allen and Unwin Ltd., pp. 239–253.
Modigliani, F. and T. Padoa-Schioppa, 1978, śThe Management of an Open Economy with “100% Plus” Wage Indexation,’Essays in International Finance 130, Princeton, pp. 1–43. Reprinted in A. Abel (ed.),The Collected Papers of Franco Modigliani, 3, Cambridge, MA, MIT Press, 1980.
Tarentelli, E., 1988,L'utopia dei deboli è la paura dei forti, FrancoAngeli.
Tarentelli, E., 1995,La forza delle idee, Laterza.
Author information
Authors and Affiliations
Additional information
Eighth Tinbergen Lecture delivered on October 7, 1994 at De Nederlandsche Bank, Amsterdam for the Royal Netherlands Economic Association.
I would like to acknowledge the devoted assistance of Rafic Naja, a third year graduate student at MIT. He helped in the design of the paper, carried out the computations for Table 2, and executed Figures 2 and 3. I also wish to thank my colleagues Olivier Blanchard and Paul Samuelson and Dr Stefan Collignon for reading the manuscript and offering valuable criticism.
Rights and permissions
About this article
Cite this article
Modigliani, F. The shameful rate of unemployment in the EMS: Causes and cures. De Economist 144, 363–396 (1996). https://doi.org/10.1007/BF01682833
Issue Date:
DOI: https://doi.org/10.1007/BF01682833