When Keynes goes to Brussels : a new fiscal rule for the EMU
Abstract
The Economic and Monetary Union (EMU) institutions are consistent
with a New Consensus that emerged in the 1980s, limiting
the role for macroeconomic (particularly fiscal) policy to short term
stabilizations by means of rules. I will argue that the policy inertia
induced by the Consensus may have played a role in the disappointing
performance of EMU economies even before the crisis.
The crisis of the Consensus, and the debate on secular stagnation,
proved that Keynesian (and possibly) persistent excesses of savings
over investment may hamper growth. This has put fiscal policy back
to the center of the scene, and given the General Theory, at eighty, a
second youth. I will argue therefore that the EMU fiscal rule should be
amended to allow semi-permanent negative government savings. I will
finally argue that a modified Golden Rule may serve this objective,
and allow EU-wide policy coordination. This seems the only reasonable
reform with some chances of being adopted by the EU divided
policy makers.
Domains
Economics and Finance
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