Policy coordination, conflicting national interests and the European debt crisis

Carlo Panico · Francesco Purificato

50 citations0/0 files storedCambridge Journal of Economics

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European Monetary and Fiscal Policies European Union Policy and Governance Global Financial Crisis and Policies

Abstract

This paper tries to identify the causes of and solutions to the debt crisis, by moving from the content of a previous debate on policy coordination in the euro area and from the available evidence on the existence of conflicting national interests within the governing bodies of the European Central Bank (ECB). It argues that before 2007 the flaws in the institutional organisation of the process of coordination between monetary and fiscal policy affected the cyclical and growth operation of the economies. After then, they have contributed to intensifying the conflicts among national and European authorities. The conflicts have curbed policy reactions, held back the interventions of the ECB, as occurred to the Federal Reserve during the crisis of 1929, and favoured the speculative attacks. The conclusion is that the organisation of the area must be reformed to allow its institutions to effectively pursue the objectives for which they were created, i.e. to protect the citizens from the instability of the international financial markets. As has been done in monetary policy, the reforms must reduce the uncertainty on the actual conduct of national policies and transform the defensive attitudes of the different actors of the process into a positive search for the most effective policy for the whole area

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References

1997Inflation Targeting: A New Framework for Monetary Policy?1989Servicing the Public Debt: The Role of Expectations* *I have greatly benefited from comments received at Johns Hopkins University, Georgetown University, the Macro Lunch Group of the University of Pennsylvania, MIT, and the Research Department of the International Monetary Fund. I am particularly indebted to Matt Canzoneri, Sara Guerschanik-Calvo, Joseph Harrington, Jr, Elhanan Helpman, Nissan Leviatan, Maury Obstfeld, Assaf Razin, Sweder van Wijnbergen and two anonymous referees. The research on this paper was partly done while I was a visiting scholar at the Research Department of the Internationed Monetary Fund, and it was partially funded by the National Science Foundation. However, any opinions expressed are entirely my own and not those of any of the above institutions. This paper has already been published in the The American Economic Review, 78, 4, September 1988, pp. 647–661.2005Fiscal Policy: Institutions versus Rules 2012Target loans, current account balances and capital flows: the ECB’s rescue facility 2004Sudden Stops, the Real Exchange Rate, and Fiscal Sustainability: Argentina's Lessons 2004Improving the SGP Through a Proper Accounting of Public Investment 20191. The Pain of Original Sin 1997Is Government Too Political?

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