How to promote economic growth in the euro area

Book abstract:

Born out of anniversary celebrations for the Bank of Belgium this book presents a collection of papers by an international group of contributors which address the economic, monetary and political aspects of growth in the eurozone. They clearly identify the fundamental mechanisms underlying the process of economic growth.

The opening contribution assesses the latest theoretical models of growth for a small open economy with convex adjustment costs. Discussion in the second chapter centres upon recent results from the OECD research project which aims to explain the widening of the disparities in growth performance among the Member States and highlights the 1990s experience of prolonged period of expansion in the United States while most European countries experienced a slow down in growth. A paper on fiscal policy and growth follows and argues that policy action in this area should be at European level and goes on to discuss other areas in which fiscal co-ordination is needed, for example in social security and pensions issues. The interaction of labour markets and economic growth is explored by Charles Wyplosz in the next contribution and a clear consensus reached in favour of engaging in product and labour market reforms. The role of exchange rates is explored by Ronald MacDonald who puts the argument for fixed exchange rates within the eurozone whilst sustaining flexible rates in the case of the eurodollar exchange rate. The contribution of monetary policy is the subject of Otmar Issing's paper and argues that the correlation between inflation and output is negative or at best zero and that a medium-term monetary policy aimed at price stability is the best contribution that monetary authorities can make to long-run economic performance. The final paper from John Vickers addresses various aspects of the relationship between economic growth and monetary union and argues strongly the benefits by way of trade stimulation which would accompany a move to the single currency. Indeed that is the fairly wide consensus of all the contributors.

The work will interest students and scholars of European Studies and financial economics as well as policy and decision makers in international organisations, national institutions and central banks.

Jan Smets is Director of the Research Department at the National Bank of Belgium and Michel Dombrecht is at the National Bank of Belgium.