Full Citation

Title: Europe's Imposed Stability, Now It Has to Create Growth

Citation Type: Miscellaneous

Publication Year: 2003

ISBN:

ISSN:

DOI:

NSFID:

PMCID:

PMID:

Abstract: The slowdown in economic growth and rising unemployment in the euro area, with major economies slipping into recession, have revealed serious fault lines in the stability and growth pact governing the euro area’s macroeconomic policies. The pact dictates that budget deficits must not exceed 3% of GDP, with a requirement budgets are in balance or surplus on average. Countries that do not adhere to these limits are threatened with fines. It should come as no surprise that slowdown pushes up deficits and has taken some countries over the 3% limit, notably in Germany and France. For now, penalties for countries exceeding the limit have not been imposed and countries are given up to four years to meet the budget deficit requirements. Although there has been some bend- ing of them, the rules remain in place. Indeed, the European Central Bank and members of the com- mission are demanding strict adherence to the rules of the pact in future. They are supported by the small countries of the eurozone, which complain that it is unfair for them to have to adhere to the pact while its main architects, Germany and France, do not. The ECB and some governments view the zone’s slowdown as the result of structural factors— labour market rigidities above all—and the failure to tackle burgeoning budget deficits. The rigidi- ties, though, have been around for a long time: during the 50s and 60s, when many European economies were booming, especially Germany’s “economic miracle” of the 70s. It is adherence to the pact’s rules to limit budget deficits, which thereby can require tax rises and expenditure cuts in the face of recession, that has promoted the present slowdown. This has not been helped by the ECB’s inability to take action to stimulate the zone’s economies. The recession has raised severe questions about the appropriateness of the institutional and policy arrangements governing the single currency and their ability to deal with unemployment, recession and inflation.

Url: www.levy.org/docs/wrkpap/papers/375.html

User Submitted?: No

Authors: Arestis, Philip; Sawyer, Malcolm

Publisher: Levy Institute

Data Collections: IPUMS USA

Topics: Labor Force and Occupational Structure

Countries: United States