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Title: The Risk of Deflation in the Future EMU: Lessons of the 1990s

Author(s): Paul De Grauwe

Publication Date: March 1998

Keyword(s): Exchange Rate, Maasticht treaty and Monetary Integration

Programme Area(s): International Macroeconomics

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 US authorities during the same period, and conclude that the US 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.

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Bibliographic Reference

De Grauwe, P. 1998. 'The Risk of Deflation in the Future EMU: Lessons of the 1990s'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=1834