In This Review

Fiscal and Monetary Policy for a Low-Speed Europe
Fiscal and Monetary Policy for a Low-Speed Europe
By Daniel Gros et al.
Centre for European Policy Studies, 2002, 108 pp

Economic policy in Europe is arcane and difficult for outsiders to follow. Fortunately, the Centre for European Policy Studies in Brussels has created a macroeconomic policy group to provide independent annual assessments of European policies. Whereas the European Central Bank (ECB) now decides monetary policy for the whole eurozone, fiscal policy is still left up to national authorities, even though it is now affected by the deficit limits imposed by the Growth and Stability Pact and by attempts at EU-wide coordination. This book provides a useful analysis and critique of contemporary macroeconomic policies in Europe as well as an assessment of Europe's medium-run economic prospects. The group is pessimistic about productivity growth in Europe, due to the continuing lack of competition and to labor-market restrictions in the service sector. But it believes the ECB has done a good job in setting monetary policy, better than the bank's own explanations suggest, even though it also urges the ECB to raise modestly its self-imposed inflation ceiling of two percent. And it finds that national fiscal policy in Europe has very little impact on aggregate demand or inflation and thus has become an ineffective instrument for demand management. The last conclusion, however, is based on analysis of the United Kingdom and pre-unified Germany, not all of Europe.