Groupthink and Denial on a Grand Scale
Chapter 5: Monetarism arrives amidst currency turmoil
While the traditional rivalries between France and Germany and the desire to maintain fixed exchange rates were at the centre of the Eurocentric negotiations about economic and monetary union in the late 1970s, a new, even more insidious factor, the increasing dominance of free market economics entered the picture. This factor was a major catalyst for the sequence of events that took Europe to Maastricht and resulted in the flawed EMU that exists today. In the 1970s, the high inflation that followed the OPEC oil price hikes was accompanied by high unemployment as governments tried to suppress economic activity to control the inflation. This era of stagflation provoked a major shift in economic thinking. The Keynesian macroeconomic orthodoxy, that dominated the post World War II period, was predicated on the view that the total spending in the economy determined the level of unemployment. Firms employed people if they had sales orders. After the cessation of the war and with the mass unemployment of the Great Depression of the 1930s still firmly etched in the minds of policy makers and the population, governments generally committed to using fiscal and monetary policy to maintain states of full employment where everybody who wanted a job could find one. This led to an acceleration of prosperity across the advanced world.
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