Macroeconomic Policies of the Economic and Monetary Union: Theorectical Underpinnings and Challenges

Macroeconomic Policies of the Economic and Monetary Union: Theoretical Underpinnings and Challenges Philip Arestis and Malcolm Sawyer, The Levy Economics Institute and Leeds University Abstract This paper presents two issues: first, an effort to decipher the type of economic analysis and macroeconomic policies of the Economic and Monetary Union (EMU) theoretical and policy framework, which we suggest are essentially of the "new consensus" variety; second, an argument that the challenges to the EMU macroeconomic policies lie in their potential to achieve full employment and low inflation in the euro area. We conclude that the institutional and policy arrangements surrounding the EMU and the euro are neither adequate for dealing with today's problems of unemployment and inflation nor promising for the future. We propose alternative policies, and institutional arrangements.