Alternatives to Renew Monetary Policy and the Stability and Growth Pact in the Euro Area

Abstract

Due to radical fiscal adjustments and the overdue monetary easing, the lag of the European economy behind the Uni-ted States has grown by more than 7 per cent in the past five years, although the source of the crisis was not the EU but the US. The efficient method of crisis management would be if the ECB were also to announce a “quantitative easing” Securities Markets Programme and were to begin buying government bonds of peripheral countries where the unemployment rate is higher than natural. It would also be necessary for the ECB to not only apply inflation targeting, but – just like the FED – to take into consideration the unemployment rate as well when shaping its monetary policy. In addition, the criteria of the Stability and Growth Pact should also be changed: it would perhaps be better to define targets for the rate of net country debt and the balance of payments rather than creating rules for gross public debt rate and public finance deficit.