Studies

: Convergence and stability in the Euro Area through effective macroeconomic policy coordination

Against the background of the massive Euro Area crisis and especially the inflation and nominal wage developments in different member states that preceded it, this study analyses the serious defects of current - and also proposed - economic governance of European Monetary Union. The fundamental conditions for macroeconomic stability, convergence and growth, at EMU and member state level, are derived, as is the need for coordination between the macro actors at both levels. A proposal for institutional reform is put forward to operationalise this analysis. The approach is preventive and builds on existing rules and institutions. It builds a bridge between risk-sharing and risk-reduction. Specifically, it consists of (1) an Advisory Board for Macroeconomic Convergence to develop scenarios and options economic development that respects the above stability and growth conditions, and (2) a Macroeconomic Dialogue to assess politically and implement suitable development paths, bringing together representatives of monetary and fiscal policy and the social partners. Both bodies should be established at both national and EMU level. The EU and its Member States should commit themselves not only to re-tiling the fiscal and financial-market policy roof anew, but also to strengthening the macroeconomic foundations of EMU as a whole, drawing on support by the social partners.