DP81 European Policy Coordination: An Evaluation

Author(s): Gilles Oudiz
Publication Date: October 1985
Keyword(s): Beggar-thy-Neighbour Policies, Europe, Macroeconomic Policy Coordination
JEL(s): 133, 423
Programme Areas: International Macroeconomics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=81

Uncoordinated macroeconomic policies lead to 'beggar thy neighbour' strategies which are clearly suboptimal for the European Community as a whole. Given the high degree of interdependence of their economies, European governments have a clear incentive to export their inflation or their unemployment. No formal model is needed to conclude that among countries which have similar economic structures, policy objectives and policy instruments such competition is bound to be futile and costly for all concerned. In this paper we try to shed light on these aspects of European policy coordination, both through the use of a simple analytic model and through an empirical evaluation of the potential gains of superior European strategies.