Managing the European economy after the introduction of the Euro
Managing the European economy after the introduction of the Euro

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Managing the European economy after the introduction of the Euro

1.4.3 Summary

  • EMU has been accompanied by fiscal rules embodied in the SGP.

  • An issue raised by this is the compatibility of a common single monetary policy target designed to defeat inflation with different fiscal policies ostensibly at the discretion of the individual govern ments.

  • When France and Germany contravened the SGP fiscal rule, it was effectively suspended and broke down. This was a case of the Council of Ministers asserting control over the European Commission.

  • It is possible that inflationary pressures will grow without the fiscal discipline afforded by the SGP.

  • An alternative consequence of undermining the SGP is that more active and discretionary fiscal policies could emerge which will be expansionary and correct the deflationary bias built into the existing EU monetary and fiscal policy regime.

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