MONETARY AND FISCAL POLICY IN EUROPE: AN OVERVIEW

There are new monetary and fiscal frameworks in place for the countries in the Euro Area. The European Central Bank has a remit to maintain price level stability in the medium term, and it has developed a two pillar strategy, with interest rates being set in relation to a reference value of M3 and general (inflationary) conditions. We discuss an ideal type representation of this framework and examine the potential effects of a fall in the euro. Fiscal policy in Europe is now based on guidelines from the Stability and Growth Pact and we discuss the role of commitment in this framework as well Monetary Union has been in place for almost two years in Europe, and fiscal policy frameworks have been changed with the introduction of the Stability and Growth Pact (SGP). The monetary framework has sometimes seemed opaque, but although much has hap-pened the new policy environment seems robust. The fiscal framework is perhaps better understood, but its implications for stabilisation policy are as yet a little unclear. This note sets the debate in context, and also introduces the four papers in this issue of the Review