Policy Coordination in the Euro Area

Abstract

The paper deals with the problems of coordination between monetary and fiscal policies in the Euro area. It examines how the existing institutions handle these problems and presents a proposal to re-organise them. The paper points out that there is a need for coordination between monetary and fiscal policies when both cyclical (short-run) and structural (long-run) problems are dealt with. Then it assesses how coordination is carried out under the existing institutional arrangements and draws from the existing literature which parts of them are in need of modification, proposing a new scheme, that regards both the institutional arrangements and the economic content of the Stability and Growth Pact, which aims at making them work effectively.

Keywords: EMU, Monetary policy, Fiscal policy, Growth, Government sector

JEL Classification: A10, E52, E61 H10, H39, H61, H63