Since the historical norm for real interest-rates has been nearer 2.5 or 3 per cent, this assumption makes any debt position seem less sustainable than it is. To the same general effect the authors of One Market, One Money commit themselves to the alarming fallacy that the prospect of increased government outlays on pensions for an ageing population two or three decades ahead requires a tighter fiscal policy in the present. 19
In reality there is no simple relationship between a government's current fiscal stance (or its future fiscal needs) and the sustainability of its fiscal position. This was well recognized by the authors of The Economics of 1992. If expansionary fiscal policy can sometimes stimulate the economy, then it can raise tax revenues and thereby improve the sustainability of any given quantity of public debt. There is no presumption, for example, that a requirement for higher tax revenues to pay pensions tomorrow necessitates a contraction of government borrowing today. If such a contraction leads--as it may--to economic downturn, unemployment, and lower investment, then the ability of the government to meet future obligations is reduced, not increased.
It is difficult to suppose that the economists of the Commission have lost touch with these economic realities. The plausible explanation is that the exaggerated horror of some actors on the European political scene at the prospect of government policies sometimes (and, we would say, justifiably) being such as to lift the rate of inflation was allowed to dominate the Maastricht negotiation. The Commission in One Market, One Money is engaged in the delicate task of persuading the peoples of Europe that such domination is in order.
Could one say that the inconsistencies of the Commission and its recent blinkered anti-inflationism account for the European public's suspicion of monetary union? That would probably be going too far. None the less, we suggest that the Commission has acted against the interests of the people. It has espoused economic theory which was never previously part of the philosophy underlying the Treaty of Rome and which threatens serious damage to the European economy and ultimately to the project of European integration itself. It is in the nature of any political process that there will not be absolute consistency among the arguments advanced