Economic Policy

After reviewing the panelists' contributions, Wendy Carlin points out that the expectations of Europe's core and Europe's periphery haven't been met. The core, notably Germany, entered the European Monetary Union with a view to the benefits of a single market. The periphery considered the EMU as a means to achieve price stability. Yet, the institutional wage bargaining that characterizes the German labor market wasn't available in the periphery, and that's one reason why inflation was low in Germany and high in the periphery, says Wendy Carlin. Real interest rates exercised a destabilizing role. Read more

Kevin O’Rourke describes a political trilemma in Europe. He says that if the nation state remains dominant in the Eurozone, the trilemma suggests two possibilities. Either public opinion is successfully ignored in countries like Germany, Greece, and Ireland; or the European Monetary Union will come under threat in the longer run.

Kevin O'Rourke is Professor of Economics at Trinity College in Dublin. He is speaking in the panel "Optimal Currency Areas and Governance: The Challenge of Europe" at the Bretton Woods Conference on April 10, 2011.

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State-owned firms are not as innovative as private firms. But it does not follow, Philippe Aghion says, that government ought to be small. Government is needed as investor in the economy’s productive capacity – R&D, education, green innovation – as well as insurer against market risks. Aghion calls for a competition-friendly industrial policy to address inefficiencies, in particular in path-dependent dirty industries. Read more

Roman Frydman, Philippe Aghion, William Janeway, William Lazonick, Ha-Joon Chang, and Peter Jungen, taking questions from the audience in the panel "The Market or the State? Can market Forces Deliver Innovation, Education, and Infrastructure?" at the Bretton Woods Conference on April 10, 2011.