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Policy Coordination in the European Economic Community

Published online by Cambridge University Press:  17 August 2016

A. Steinherr
A. Steinherr*
Affiliation:
Université Catholique de Louvain
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Extract

Coordination of economic policies and convergence of economic performance within the European Community are objectives already laid out in the Treaty of Rome. A number of later decisions by the Council of Ministers reaffirm and specify these principles. The 1974 Convergence Decision provides a procedural framework for review of the economic situation and policy with the aim of bringing about greater convergence of macroeconomic performance. In this process a central place is given to the setting of budgetary policy guidelines. In addition, the EMS provides a potentially strong mechanism for coordinating monetary policy under the constraint of fixed, but adjustable, exchange rates and, in principle, free capital movements.

Type
PART TWO: European and Transatlantic Policy Coordination
Information
Recherches Économiques de Louvain/ Louvain Economic Review , Volume 51 , Issue 3-4 , December 1985 , pp. 285 - 299
Copyright
Copyright © Université catholique de Louvain, Institut de recherches économiques et sociales 1985 

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References

(1) This result can be shown as follows. Suppose a non-cooperative solution is obtained. Since this solution is feasible by assumption, it can also be reached through cooperation, so that the cooperative solution can never be worse than the non-cooperative solution. That is, through cooperation some constraints on national policies are relaxed. Hence, the players in the game may be able cooperatively to find a solution that is superior to the non-cooperative solution for all players. The cooperative solution would then be Pareto-superior to the initial non-cooperative solution. Pareto-superio means that the pay-off to some players can be increased without lowering the pay-offs to any player. If the requirement that all players must gain is dropped, they may do even better: they collectivity maximises with one constraint less. To induce losers into participation they usually need to be compensated for their losses. This compensation is called «side-payments» in the jargon of game theory. Agreement on side-payments renders, of course, coordination much more difficult.

(2) Stackelberg in this application means that the follower sets his policies, including the exchange rate, so as to maximise his utility function, taking the leader’s action as given, while the leader maximises, taking the policies of the follower into account.