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The two-handed growth strategy for Europe: Autonomy through flexible cooperation1

Published online by Cambridge University Press:  17 August 2016

Jacques Drèze ,
Charles Wyplosz ,
Charles Bean ,
Francesco Giavazzi  and
Herbert Giersch
Jacques Drèze
Affiliation:
Université Catholique de Louvain
Charles Wyplosz
Affiliation:
INSEAD, Fontainebleau
Charles Bean
Affiliation:
London School of Economics
Francesco Giavazzi
Affiliation:
University of Bologna
Herbert Giersch
Affiliation:
Kiel University
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Summary

This article develops the international aspects of the two-handed growth strategy. Both the supply and demand side measures are reviewed. The need to work on both sides simultaneously is stressed, even if the specific topic of cooperation privileges the demand side. The report argues that inflation, while always a risk, should not be currently seen as a major issue. Accordingly, it concentrates on the fiscal and external constraints. These two constraints are strongly interrelated. Openness makes fiscal policy significantly less cost-efficient: the case for cooperative action stems from the possibility of internalizing the income flow leakages which may deter governments from working on the demand side of the economy as they make progress on the supply side.

The benefits from cooperation are directly related to openness. In practice, this means that Europe can act autonomously, as it is relatively closed: the two-handed strategy does not need to be made contingent on cooperation with the US and Japan. On the contrary, cooperation within Europe is crucial. Yet cooperation is not synonymous with synchronisation and, in particular, different conditions across countries (inflation, public and external debts) warrant different policies. Flexible cooperation must rely on Germany, France and the UK taking the lead in staging a fiscal expansion to match advances on the supply side.

Résumé

Résumé

Cet article développe la dimension internationale de la stratégie de croissance bipolaire déjà présentée antérieurement et portant en même temps sur des mesures d’offre et de demande. L’article se concentre sur la contrainte fiscale et la contrainte externe et souligne leur interdépendance. Sans coopération, l’ouverture extérieure rend la politique budgétaire moins efficace. Par contre, s’il y a coopération, les fuites qui pourraient détourner les gouvernements d’une politique de soutien de la demande peuvent être évitées. L’Europe, étant un ensemble relativement clos, peut agir d’une manière autonome. La stratégie suggérée ici n’est donc pas dépendante d’une coopération avec les Etats-Unis et le Japon. Par ailleurs, la coopération inter-européenne préconisée n’implique pas une synchronisation des politiques. Au contraire, la différence des conditions économiques, en termes d’inflation et d’endettement interne, invite à des politiques économiques différenciées selon le pays.

Keywords

121133423121133423
Type
Research Article
Information
Recherches Économiques de Louvain/ Louvain Economic Review , Volume 54 , Issue 1 , 1988 , pp. 5 - 52
Copyright
Copyright © Université catholique de Louvain, Institut de recherches économiques et sociales 1988 

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Footnotes

2

The authors thank Jürgen Kröger for help with the data and Sara del Favero for diligent research assistance.

1

This paper appeared as Economic Papers, n°60, October 1987, of the Commission of European Communities and as aCEPS paper, n°34, December 1987, of the Center for European Policy Studies. The editors are grateful to both these institutions for their permission to publish this article.

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