Economic policy coordination and the role of fiscal targets

Abstract

The process of European integration towards Economic and Monetary Union is a unique experiment in history. It is a unification not by brute force, but by means of cooperation and coordination, governed by a treaty and other legislation. The Treaty of Maastricht gives a blueprint of the final goal of emu and the path along which this is to be attained. The challenge will be to achieve the goals of the Treaty. The events of 1993 demonstrate that this is not a straightforward exercise. Almost immediately after confirmation of the goals of the Exchange Rate Mechanism of the European Monetary System, the mechanism barely survived severe turbulence stemming from a lack of adequate policies and policy coordination. It is clear that policy-makers, for better or worse, are more influential than a written text. Therefore, we know in advance that the path towards emu will be an exercise in policy discipline, and not an exercise in reading a Treaty.