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Economic Convergence in the Integrating Community Economy and the Role of Economic Policies

Published online by Cambridge University Press:  17 August 2016

Bernard Connolly
Affiliation:
Commission of the European Communities
Jürgen Kröger
Affiliation:
Commission of the European Communities
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Summary

The present paper shows that with increasing economic integration the notion of nominal convergence is changing with price convergence more easily achievable, convergence of cost trends becoming more important and convergence of current account balances less essential. Convergence in supply conditions will crucially determine future employment opportunities. The issue of credibility of the supply performance seems to be just as important as the more conventionally accepted issue of macro-economic credibility. Policies which, enhance the supply-side flexibility of EC economies would reduce the temptation to use discretionary policies to influence regional output and employment. Flexibility of relative price and wages would also by itself temper the need for demand management, facilitate adjustment to both temporary and permanent shocks and reduce the need for an intra-EC transfer mechanism. However, the reform of economic structures so as to increase flexibility will itself constitute a shock. Structural reforms may thus themselves be a source of short-term déstabilisation of aggregate demand, prices and employment. Deciding whether or not anticyclical fiscal responses (which may be equivalent to capital controls) are appropriate in such circumstances is not straightforward.

Résumé

Résumé

Cet article montre que l’intégration économique croissante change la notion de convergence nominale : la convergence des prix est plus facile à atteindre, la convergence des coûts devient plus importante et la convergence des balances courantes perd son rôle essentiel. La convergence des conditions d’offre sera déterminante pour les conditions d’emploi futures. La question de la crédibilité des performances du côté de l’offre, semble devenir aussi importante que celle déjà bien établie de la crédibilité macroéconomique. Les politiques qui renforcent la flexibilité de l’offre des économies de la Communauté, réduiraient la tentation d’utiliser des politiques discrétionnaires pour influencer la production régionale et l’emploi. La flexibilité des prix relatifs et des salaires modéreraient aussi le besoin de gestion de la demande globale, faciliteraient l’ajustement à la fois aux chocs, temporaires et permanents, et réduiraient le besoin de transferts internes à la Communauté. Cependant, la réforme des structures économiques nécessaire à l’accroissement de la flexibilité, constituera en elle-même un choc. Les réformes de structure pourraient donc être elles-mêmes sources d’instabilité à court terme de la demande globale, des prix et de l’emploi. Dans ces conditions, l’opportunité de mesures budgétaires anti-cycliques est loin d’être évidente.

Keywords

Type
Research Article
Copyright
Copyright © Université catholique de Louvain, Institut de recherches économiques et sociales 1993 

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Footnotes

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The views can only be attributed to the authors.

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