Chapter 7: Macroeconomic policies of the Economic and Monetary Union: theoretical underpinnings and challenges
Philip Arestis and Malcolm Sawyer INTRODUCTION This chapter is focused on the macroeconomic policies of the European Monetary Union. It seeks to decipher the type of economic analysis and macroeconomic policies of the Economic and Monetary Union (EMU) theoretical and policy framework. It argues that the challenges to the EMU macroeconomic policies lie in their potential to achieve full employment and low inﬂation in the euro area. It is concluded that these policies as they currently operate have not performed satisfactorily since the inception of the EMU and are unlikely to operate any better in the future. The chapter presents some alternatives, which are based on a different theoretical framework and which propose different institutional arrangements and policies. The ﬁrst main section is entitled ‘Theoretical underpinnings of the EMU model’, and deals with the nature of the economic model surrounding the EMU which is seen as essentially what has been termed the ‘new consensus’ in macroeconomics. The macroeconomic policies that emanate from this model are then deciphered in the section entitled ‘EMU macroeconomic policies’. The key challenge is whether in the EMU these policies are adequate to deal with the problems of unemployment and inﬂation, and thus help to achieve and maintain a framework of full employment. The two sections that follow examine monetary policy and ﬁscal policy, respectively, within the EMU context. They are both found as unable to steer the euro area to a non-inﬂationary full-employment environment. In the section entitled ‘Policies for full employment...
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