The Case for a New Policy Framework — Introduction
There are several reasons why it has become important to rethink economic policy. From a European perspective there is a need to define which the policies should be made at national level and which at European level. Europe was tremendously successful in the introduction of a new currency, but is now struggling to find the optimal macro economic policy for a set of economies which are diverse both in their economic performance and their social and political systems. Europe was moderately successful in reducing public debt, yet the institutional arrangement (Maastricht criteria, Stability Pact) chosen is quite definitely suboptimal and currently under revision. The fiscal goal of approximately zero deficits proved sustainable for some countries during a period of slow growth, but failed in three of the four large economies. Europe is quite successful in pushing exports over imports partly by moderate wage increases, but has been consistently lagging behind the USA in growth during the 1990s and the first years of the new decade. The productivity gap between the USA and Europe, which had narrowed from decade to decade, started to widen again in the late 1990s (Aiginger, 2002; Gordon, 2002). Europe has successfully increased employment by adding 14 million jobs over the past five years. This, however, reduced multifactor productivity and the contribution of capital deepening, instead of accelerating growth. And the progress made in cutting down on unemployment has not been impressive, considering that unemployment is still higher and employment lower in Europe than it is in the USA.
KeywordsCurrent Account Public Debt Policy Framework European Perspective European Research Project
Unable to display preview. Download preview PDF.
- Aiginger, K., The New European Model of the Reformed Welfare State, Stanford University, European Forum Working Paper 2002, (2).Google Scholar
- Gordon, R.J., Two Centuries of Economic Growth: Europe Chasing the American Frontier, Paper prepared for the Economic History Workshop, Northwestern University, Chicago, 2002.Google Scholar