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The political economy of fiscal policy in EMU

By Bob Hancké

Abstract

This paper treats low inflation in EMU as a collective action problem for Ecofin. The SGP and more broadly the BEPG, operating against a background of the ECB and wage-setting, are the instruments for this. The ECB delegates sanctioning to the member-states while preserving the authority to set interest rates. Labour relations systems in different countries pursue disinflationary wage settlements. The BEPG (including the SGP) therefore have to be understood as a critical element in a signalling game between the ECB, Ecofin and the wagesetting systems

Topics: HB Economic Theory
Publisher: European Political Economy Infrastructure Consortium
Year: 2003
OAI identifier: oai:eprints.lse.ac.uk:18005
Provided by: LSE Research Online
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