01 Jul 2004

Breaking the Reform Deadlock, 6th Annual Report of the CEPS Macroeconomic Policy Group

Thomas Mayer / Angel Ubide / Daniel Gros / Roberto Perotti

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Euroland is now in its fourth year of unsatisfactory growth. What are the reasons for this and what can be done about it? This report arrives at the following conclusions:
1. Demographic change is already now reducing the growth potential and squeezing government finances.
2. Insufficient investment is the main driver of the productivity slowdown that has weakened growth.
3. To stimulate investment, better coordination among fiscal, structural and monetary policy is needed: Ideally a combination of structural reform, fiscal consolidation and low interest rates. The ECB – as the only widely respected economic policy-making institution in the EU with room for manoeuvre – should become more proactive in pursuing economic policy coordination in order to obtain more progress on structural reform and fiscal consolidation.
4. To foster a more balanced expansion of the world economy and reduce the risk of brutal exchange rate movements, greater cooperation among the central banks of the US, the EU, Japan and China is needed, giving rise to a G4.