Chapter 10: The ideological straitjacket
The design of the EMU agreed on in Maastricht reflected a range of factors, none of which made any real macroeconomic sense. Charles Wyplosz wrote that ‘With little experience to rely upon and limited theoretical backing, economists and policy-makers had to invent practically everything in little time. Policy-makers rushed to negotiate a detailed agreement, having no time for detailed economic analysis’ (Wyplosz, 2006). There was one major piece of analysis published by the European Commission in 1990, One Market, One Money, which sought to provide some analytical backing to the Delors Plan. The analysis used deeply flawed economic models (including the notoriously poorly performed IMF Multimod model), which generated sympathetic results reflecting the assumptions made. These models are held out as ‘neutral’ tests of policy propositions but are, in fact, so laden with theoretical biases that they are incapable of providing the role of the ‘independent umpire’. The expression GIGO (Garbage In, Garbage Out) is apposite.
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