The Challenge of the Early Years
Edited by Marco Buti and André Sapir
Chapter 9: The EMU’s Economic Policy Principles: Words and Facts
Jean Pisani-Ferry* The ﬁrst years of Economic and Monetary Union can be considered a success. The various apocalyptic forecasts that were still commonplace two years ago have not materialized. Economic growth has been buoyant and there has been no major deviation from price stability, in spite of a somewhat chaotic international environment. Public support for the euro remains strong (at least within the zone). The initial fall in the external value of the currency could have been considered a worrying sign but, whether it can be ascribed to market perceptions of EMU rather than to structural factors, remains an issue for discussion. There are, however, several reasons for having a second look at the functioning of EMU: G G G as a matter of principle, the quality of a policy regime should be assessed at least over an entire business cycle. At the time of writing it is much too early to claim that the euro area is ﬁt to resist severe shocks and that its new policy regime will ensure that the present expansion cycle will not terminate prematurely. Close examination of the early experience may provide indications on potential weaknesses in the policy system; as long as convergence was the overriding priority of macroeconomic policy, there could not be much uncertainty as regards the direction of macroeconomic policies. As budgetary balances approached or exceeded the ‘close-to-balance or in surplus’ objective set in the Stability and Growth Pact (SGP), there has been more room for diverging national policies and...
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