Hostname: page-component-78c5997874-lj6df Total loading time: 0 Render date: 2024-11-19T13:10:38.210Z Has data issue: false hasContentIssue false
  • English
  • Français

The two-handed growth strategy for Europe: Autonomy through flexible cooperation1

Published online by Cambridge University Press:  17 August 2016

Jacques Drèze ,
Charles Wyplosz ,
Charles Bean ,
Francesco Giavazzi  and
Herbert Giersch
Jacques Drèze
Affiliation:
Université Catholique de Louvain
Charles Wyplosz
Affiliation:
INSEAD, Fontainebleau
Charles Bean
Affiliation:
London School of Economics
Francesco Giavazzi
Affiliation:
University of Bologna
Herbert Giersch
Affiliation:
Kiel University
Get access

Summary

This article develops the international aspects of the two-handed growth strategy. Both the supply and demand side measures are reviewed. The need to work on both sides simultaneously is stressed, even if the specific topic of cooperation privileges the demand side. The report argues that inflation, while always a risk, should not be currently seen as a major issue. Accordingly, it concentrates on the fiscal and external constraints. These two constraints are strongly interrelated. Openness makes fiscal policy significantly less cost-efficient: the case for cooperative action stems from the possibility of internalizing the income flow leakages which may deter governments from working on the demand side of the economy as they make progress on the supply side.

The benefits from cooperation are directly related to openness. In practice, this means that Europe can act autonomously, as it is relatively closed: the two-handed strategy does not need to be made contingent on cooperation with the US and Japan. On the contrary, cooperation within Europe is crucial. Yet cooperation is not synonymous with synchronisation and, in particular, different conditions across countries (inflation, public and external debts) warrant different policies. Flexible cooperation must rely on Germany, France and the UK taking the lead in staging a fiscal expansion to match advances on the supply side.

Résumé

Résumé

Cet article développe la dimension internationale de la stratégie de croissance bipolaire déjà présentée antérieurement et portant en même temps sur des mesures d’offre et de demande. L’article se concentre sur la contrainte fiscale et la contrainte externe et souligne leur interdépendance. Sans coopération, l’ouverture extérieure rend la politique budgétaire moins efficace. Par contre, s’il y a coopération, les fuites qui pourraient détourner les gouvernements d’une politique de soutien de la demande peuvent être évitées. L’Europe, étant un ensemble relativement clos, peut agir d’une manière autonome. La stratégie suggérée ici n’est donc pas dépendante d’une coopération avec les Etats-Unis et le Japon. Par ailleurs, la coopération inter-européenne préconisée n’implique pas une synchronisation des politiques. Au contraire, la différence des conditions économiques, en termes d’inflation et d’endettement interne, invite à des politiques économiques différenciées selon le pays.

Keywords

121133423121133423
Type
Research Article
Information
Recherches Économiques de Louvain/ Louvain Economic Review , Volume 54 , Issue 1 , 1988 , pp. 5 - 52
Copyright
Copyright © Université catholique de Louvain, Institut de recherches économiques et sociales 1988 

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

Footnotes

2

The authors thank Jürgen Kröger for help with the data and Sara del Favero for diligent research assistance.

1

This paper appeared as Economic Papers, n°60, October 1987, of the Commission of European Communities and as aCEPS paper, n°34, December 1987, of the Center for European Policy Studies. The editors are grateful to both these institutions for their permission to publish this article.

References

REFERENCES

Barro, R. (1974), Are Government Bonds Net Wealth?, Journal of Political Economy, 82, pp. 1095–1117.Google Scholar
Barro, R. (1979), On the Determination of the Public Debt, Journal of Political Economy, 87, pp. 940–971.Google Scholar
Bean, C. (1985), Macroeconomic Policy Coordination : Theory and Evidence, Recherches Economiques de Louvain, vol. 51, pp. 267–283.Google Scholar
Bean, C, Layard, R. and Nickell, S. (1986), The Rise in Unemployment : A Multi-Country Study, Economica, 53, (Supplement), pp. S1–S22.Google Scholar
Begg, D. and Wyplosz, C. (1987), Why the EMS ? Dynamic Games and the Equilibrium Exchange Rate Regime, in : Bryant, R. and Portes, R. (eds.), Global Macroeconomics, Policy Conflicts and Cooperation, MacMillan, forthcoming.Google Scholar
Blanchard, O., Dornbusch, R., Dreze, J., Giersch, H., Layard, R. and Monti, M. (1985), Employment and Growth in Europe : A Two-Handed Approach, CEPS Paper n°21.Google Scholar
Bruno, M. and Sachs, J. (1985), Economics of Worldwide Stagflation, Basil Blackwell.Google Scholar
Buiter, W. (1985), A Guide to Public Sector Debts and Deficits, Economic Policy, 1, pp. 13–79.Google Scholar
Cohen, D. (1985), How to Evaluate the Solvency of an Indebted Nation, Economic Policy, 1, pp. 139–167.Google Scholar
Cooper, R. (1984), Economic Interdependence and Coordination of Economic Policies in : Jones, R. and Kenen, P. (eds.), Handbook of International Economics, North-Holland.Google Scholar
Danthine, J.P. and Lambelet, J.C. (1987), The Swiss Case, Economic Policies, 5, forthcoming.Google Scholar
De GRAUWE, P. and Verfaille, G. (1987), Exchange Rate Variability, Misalignment, and the European Monetary System, unpublished, University of Leuven.Google Scholar
Dornbusch, R. and Frankel, J. (1987), Macroeconomics and Protection, in : Stern, R.M. (ed.) US Trade Policies in a Changing World Economy, Cambridge, MIT Press.Google Scholar
Dreze, J. (1986), Work Sharing : Some Theory and Recent European Experience, Economic Policy, 3, pp. 561–619.Google Scholar
Dreze, J. (1987), Underemployment Equilibria : From Theory to Econometrics and Policy, European Economic Review Papers and Proceedings, pp. 9–34.Google Scholar
Franz, W. (1985), The Past Decade’s Natural Rate and the Dynamics of German Unemployment : A Case Against Demand Policy?, European Economic Review, 21, pp. 51–76.Google Scholar
Franz, W. and König, H. (1986), The Nature and Causes of Unemployment in the Federal Republic of Germany since the 1970s : An Empirical Investigation, Economica, 53, (supplement), pp. S219–S244.Google Scholar
Giavazzi, F. and Giovannini, A. (1986), The EMS and the Dollar, Economic Policy, 2, pp. 456–485.Google Scholar
Giavazzi, F. and Pagano, M. (1988), The Advantage of Tying One’s Hands : EMS Discipline and Central Bank Credibility, European Economic Review, forthcoming.Google Scholar
Giersch, H. (1987a), Internal and External Liberalisation for Faster Growth, Commission of The European Communities, Directorate-General for Economic and Financial Affairs (ed.), Economic Paper n° 54, Brussels.Google Scholar
Giersch, H. (1987b), Economic Policies in the Age of Schumpeter, European Economic Review Papers and Proceedings, pp. 35–52.Google Scholar
Hamad, AK. (1976), A Strategic Analysis of Monetary Interdependence, Journal of Political Economy, vol. 84, August, pp. 677–700.Google Scholar
Lambert, J.P., Lubrano, M. and Sneessens, H. (1984), Emploi et chômage en France de 1955 à 1982 : un modèle macroéconomique annuel avec rationnement, Annales de l’INSEE, pp. 55–56.Google Scholar
Layard, R. and Nickell, S. (1985), The Causes of British Unemployment, National Institute of Economics Review, n°111, pp. 62–85.Google Scholar
Lucas, R. and Stokey, N. (1983), Optimal Fiscal and Monetary Policy in an Economy Without Capital, Journal of Monetary Economics, 12. pp. 55–93.Google Scholar
Mortensen, J. (1984), Profitability, Relative Factor Prices and Capital/Labour Substitution in the Community, the United States and Japan, 1960–1983, European Economy, n° 20, pp. 33–67.Google Scholar
Oudiz, H.G. and Sachs, J. (1984), Macroeconomic Policy Coordination Among the Industrial Economies, Brookings Papers on Economic Activity, 1, pp. 1–75.Google Scholar
Persson, M., Persson, T. and Svensson, L. (1986), Time Consistency of Fiscal and Monetary Policy, IIEP Seminar Paper n° 331, Stockhlom.Google Scholar
Rogoff, K. (1985), Can Exchange Rate Predictability Be Achieved Without Monetary Convergence ? — Evidence from the EMS, International Finance discussion Paper n° 245.Google Scholar
Sachs, J. (1983), International Policy Coordination in a Dynamic Macroeconomic Model, NBER Working Paper n° 1166.Google Scholar
Sachs, J. and Wyplosz, C. (1984), Real Exchange Rate Effects of Fiscal Policy, NBER Working Paper n°1255.Google Scholar
Sachs, J. and Wyplosz, C. (1986), The Economic Consequences of President Mitterand, Economic Policy, 2, pp. 261–321.Google Scholar
Viñals, J. (1986), Fiscal Policy and the Current Account, Economic Policy, 3, pp. 711–744.Google Scholar