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Mr. Massimo M Beber
Fellow in Economics
Sidney Sussex College
Cambridge CB2 3HU
[email protected]
www.cus.cam.ac.uk/~mb65/mpes
European Economics
Lecture 8
EXPENDITURE MANAGEMENT II:
FISCAL POLICY AND THE GSP
(Provisional Version: last updated 24th February 2006)
M.Phil. in Contemporary European Studies 2006/7
©Massimo M Beber 2006
Lecture Outline
• From budget to financial statement
• One market, one money, many budgets
• The political economy of aggregate expenditure
management
• Maastricht criteria vs the “5 economic tests”
• The re-nationalisation of fiscal policy?
TRADE-OFFS IN THE INTERNATIONAL
FINANCIAL ARCHITECTURE
C’
B
C’’, C
A,D
Free Mobility of Capital
A:
B:
C:
C’, C’’:
D:
the Gold Standard as an “anchor” to the price level
the Bretton Woods compromise
the German model, Mrs Thatcher’s monetarist experiment
the Keynesians’ Last Hurrah between autarchy and stagflation
back to the anchor: EMU, currency boards, dollarisation...
REAL AND NOMINAL EXCHANGE RATES - ITALY
Bretton Woods
Stagflation
400
Transition to EMU
ERM disinflation
300
250
200
150
100
Source: AMECO Ch. 15 (accessed Dec. 05)
Nominal
Real
20
04
20
02
20
00
19
98
19
96
19
94
19
92
19
90
19
88
19
86
19
84
19
82
19
80
19
78
19
76
19
74
19
72
19
70
19
68
19
66
19
64
19
62
50
19
60
1995=100 - exchange rate against EU-14
350
Gordon Brown’s economic tests for British Membership
Source: HM Treasury (2003) Government Policy on EMU and the Five Economic Tests, Ch. 1. [WWW]
REPORTS OF THE DEATH OF (CREDIBLE, NEW-KEYNESIAN)
ECONOMICS HAVE BEEN GREATLY EXAGGERATED...
Source: Gordon Brown’s Budget Speech, 17th March 2004. (HM Treasury 2004a [WWW])
Conclusions
• Europe’s macroeconomic constitution is
asymmetric - unified monetary policy but no
(legal) fiscal stabilisation mechanisms
• The Maastricht architecture reflects an
increasingly obsolete 1980’s policy consensus,
while (limited) stabilisation policy has since
been rehabilitated
• The recent interest in national fiscal rules may
offer greater, UK-style fiscal flexibility to EMU