Keynes’s General Theory for Today

Keynes’s General Theory for Today

Contemporary Perspectives

Edited by Jesper Jespersen and Mogens Ove Madsen

The themes of this important new volume were chosen to mark the 75th anniversary of the publication of The General Theory of Employment, Interest and Money. The distinguished authors concentrate on the relevance of this seminal publication for macroeconomic theory, method and the politics of today. This is particularly pertinent as similarities with the 1930s are striking in terms of unemployment, low growth, financial fragility and the European monetary union resembling the gold standard.

Chapter 11: Nothing learned from the crisis? Some remarks on the stability programmes 2011–2014 of the Euro area governments

Gregor Semieniuk, Till van Treeck and Achim Truger

Subjects: economics and finance, history of economic thought, post-keynesian economics

Extract

The economic crisis in the Euro area continues to galvanize its member states’ governments in 2011. In particular, Greece and increasingly other countries in the so-called periphery of the monetary union are facing the threat of defaulting on their debt. Over and above the pressing default problem, which is exacerbated by the lack of country-level exchange rate flexibility and monetary policy, Euro area governments need to achieve the longer-term macroeconomic stability required for a functioning monetary union. This stability, which includes the reduction of external imbalances, is widely recognized as essential for the Euro area to achieve robust growth. Without growth it is feared that unemployment cannot be reduced, foreboding more social unrest and possibly threatening the very project of European integration. In striving for stability, Euro area governments therefore face two challenges: the reduction of public deficits, and the reduction of external imbalances. However, while the public deficits have been in the limelight ever since the inception of the monetary union, the focus on external imbalances has been meagre. While the present crisis has finally alerted some European policy-makers, the governments still largely ignore the importance of reducing current account imbalances in a coordinated manner.

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