The Risk of Deflation in the Future Emu: Lessons of the 1990s

CEPR Discussion Paper Series No. 1834

Posted: 18 Aug 1998

See all articles by Paul De Grauwe

Paul De Grauwe

London School of Economics & Political Science (LSE); CESifo (Center for Economic Studies and Ifo Institute for Economic Research); Centre for Economic Policy Research (CEPR)

Date Written: March 1998

Abstract

In this paper we argue, first, that the Maastricht-inspired policy mix of monetary and fiscal restriction applied during the first half of the 1990s is, to a significant extent, responsible for the build-up of both the unemployment rate and the government debt to GDP ratios on the European continent. We also contrast this European policy mix with the one applied by the U.S. authorities during the same period and conclude that the U.S. policy mix of fiscal restriction and monetary ease was more appropriate to reduce budget deficits and debt. Second, we evaluate the risk of the application of monetary and fiscal restriction in the future EMU. In this connection, we argue that the Stability Pact has transformed the 60% Maastricht debt criterion into a 0% debt criterion.

JEL Classification: F33, F36, F42

Suggested Citation

De Grauwe, Paul, The Risk of Deflation in the Future Emu: Lessons of the 1990s (March 1998). CEPR Discussion Paper Series No. 1834, Available at SSRN: https://ssrn.com/abstract=106382

Paul De Grauwe (Contact Author)

London School of Economics & Political Science (LSE) ( email )

Houghton Street
London, WC2A 2AE
United Kingdom

CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

Poschinger Str. 5
Munich, DE-81679
Germany

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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