On Macroeconomic Policy Co‐ordination in EMU

Abstract

The formation of economic and monetary union (EMU) has created a framework for economic policy-making in Europe which is unique in history. While the single monetary policy is oriented towards a Union-wide objective, namely the maintenance of price stability, the other policy areas – involving fiscal and wage policies – largely remain the competence of national governments and other national actors, such as the social partners. Against this background, calls for enhanced macroeconomic policy coordination between monetary policy, on the one hand, and fiscal and wage policies, on the other hand, have come about as a result of the perception that the new institutional framework in EMU places constraints on the different policies. It is argued that these constraints could be alleviated by setting the available policy instruments in a co-ordinated manner in order to achieve a macroeconomic policy mix at the euro area level that is conducive to higher growth and employment.1 The central message I wish to convey here, however, is that there are no convincing arguments in favour of attempts to co-ordinate macroeconomic policies ex ante in order to achieve an overall policy mix favourable to growth and employment. On the contrary, attempts that extend beyond the informal exchange of views and information give rise to the risk of confusing the specific roles, mandates and responsibilities of the policies in question. They thereby reduce the transparency of the overall economic policy framework