Academic journal article The European Journal of Comparative Economics

Book Review: Economic Policy Coordination in the Euro Area by Armin Steinbach 1

Academic journal article The European Journal of Comparative Economics

Book Review: Economic Policy Coordination in the Euro Area by Armin Steinbach 1

Article excerpt

Book Review: Economic Policy Coordination in the Euro Area by Armin Steinbach 1

More than six years ago, the Eurozone crisis broke out. Some, but not many economists had seen it coming. Today, Europe still suffers from continuing woes. But do economists at least know (better) what kind of policies would have prevented the crisis? Which measures help dealing with it? And what steps would avert equally disastrous consequences in case of renewed shock waves from the real economy or the financial sector?

This kind of questions must have motivated Armin Steinbach to assess the Eurozone's macroeconomic framework within his book Economic Policy Coordination in the Euro Area. The ongoing economic crisis, particularly the one in Europe, has also been perceived as a crisis of the economic profession. Steinbach's contribution is a serious attempt to end both of them. Since the beginning of the crisis, numerous rather general proposals for a revised European economic policy framework have been broadly disseminated. These have for instance foreseen a dismantling of the Eurozone, or, alternatively, the introduction of joint fiscal policy instruments such as joint bonds or joint automatic stabilizers. However, there seems to have been a lack of advice that would take into account feasibility, implementation as well as political implications of the proposed economic strategies. A lack of advice that would fit into the legal framework of the EU, the Euro Area and its member states, as well as their respective political circumstances. This suggests that, in search of the silver bullet for the European economy, horizontality and the integration of other disciplines' results has been weak. The lack of horizontality has gone even deeper, leading in many cases to incompatibility between advice given by macro- and microeconomists. I will get back to this later.

The apparent shortage of tailor-made advice to European policy makers thus calls for multidisciplinary approaches that take into account the disciplines of institutional economics as well as of law and economics. Armin Steinbach is well placed to deliver - and to break the silos. Trained as a lawyer as well as an economist, he has experience in both science and policy making. And indeed, Economic Policy Coordination in the Euro Area is a book that looks at the Euro crisis and the development of institutions in Europe from a multidimensional perspective: Steinbach assesses recent years' reform efforts from an economic as well as a legal and political point of view. While tackling European issues as a whole, he chooses to a large extent a German focus, gives examples from Germany and discusses questions related to German - national - policy choices. This is not necessarily expected from the book's title, but can nevertheless be considered as justified, given Germany's size and its importance in the Eurozone as well as in European decision-making.

Steinbach introduces economic policy coordination, in a traditional sense, as the coordination between the classical forms of macroeconomic policies - fiscal, monetary and wage policy. He considers cross-country spillovers within these policy areas in the European monetary union, as well as spillovers between policy fields. This kind of classification - Steinbach defines the former as cross-border and the latter as crosspolicy spillovers - is extremely helpful indeed and constitutes a major element of the analysis.

This tool could furthermore be applied outside of the specific context of economic policy in the Euro Area and help identifying blind spots in policy coordination in general. Also from a technical point of view, extensions are conceivable. While Steinbach chooses a pragmatic two-dimensional perspective by looking at spillovers between policies as well as between countries, those aspects could moreover be combined in a three-dimensional way. This would help assessing whether there are externalities or spillovers between policy A in country B and policy C in country D; for instance, between wage policy in Germany and fiscal policy in France. …

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