The Risk of Deflation in the Future Emu: Lessons of the 1990s
CEPR Discussion Paper Series No. 1834
Posted: 18 Aug 1998
Date Written: March 1998
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: Suggested Citation