Sunday, January 28, 2018

Bill Mitchell — IMF finds the Eurozone has failed at the most elemental level

The IMF put out a new working Paper last week (January 23, 2018)) – Economic Convergence in the Euro Area: Coming Together or Drifting Apart? – which while they don’t admit it demonstrates that the Economic and Monetary Union (EMU) has failed to achieve its most basic aims – economic convergence. The stated aim of European integration has always been to achieve a convergence in the living standards of those within the European Union. That goes back to the 1957 Treaty of Rome, which established the EEC (Common Market). It has been reiterated many times in official documents since. It was a centrepiece of the 1989 Delors Report, which was the final design document for the Treaty of Maastricht and the creation of the EMU. The success or otherwise of the system must therefore be judged in terms of its basic goals and one of them was to create this convergence. The IMF finds that the EMU has, in fact, created increased divergence across a number of indicators – GDP per capita, productivity growth, etc. It also finds that the basic architecture of the EMU, which has allowed nominal convergence to occur has been a destabilising force. It finds that the Stability and Growth Pact criteria has created an environment where fiscal policy has become pro-cyclical, which is the exemplar of irresponsible and damaging policy implementation. Overall, the conclusion has to be drawn that the EMU, at its most elemental level, has failed and defies effective reforms that would make it workable. It should be scrapped or nations should exercise their own volition and exit before it causes them further damage.
Bill Mitchell – billy blog
IMF finds the Eurozone has failed at the most elemental level
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia

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