European Fiscal Policy Coordination and the Persistent Myth of Stabilization

[From the introduction]. Institutional and ideological influences are not as important as they might seem at first glance. Seen from Bologna, there are good reasons to doubt the mainstream critique of European macroeconomic governance. Probably the most important is the bias in the conventional wisdom against diversity, asymmetry, inequality, and difference. A close second is the weak scrutiny of realistic alternatives. It may be possible to make macroeconomic governance better it Europe, but the reverse is also true. We should be sure that what we have is broken before we try to fix it. The purpose of this paper is to present an alternative view. It is not a comprehensive argument. Rather it is a piecemeal attack on three of the building blocks in the conventional wisdom. Specifically, I am interested to examine the relationship between stabilization and adjustment; the prospects for fiscal stabilization; and the idea of international fiscal stabilization–by which I mean the timely transfer of fiscal resources to offset asymmetric economic performance across national economies within a common currency area like the euro-zone. My contention is that if we took a different view on these issues, we would find it hard to sustain the conventional wisdom and easy to see how suggestions for closer macroeconomic and fiscal policy coordination are likely to make matters worse.