We make the case here for an economic constellation that fosters increases in productivity and innovation. This would be one marked by a stable and, at the same time, dynamic financial system and based, fundamentally, on growth in domestic or regional demand among the world’s nations, driven by increases in income and thus able to prevent major current account imbalances. The world economy should be linked to a system of relatively stable exchange rates, which could be adjusted to redress any emerging major imbalances. The principal instrument used to combat current account imbalances should be a set of monetary and fiscal policies – as well as appropriate wage policies within monetary unions, such as EMU. Exchange rates should be adjusted as soon as any excessive current account imbalances appear to be emerging. The fact that exchange rate adjustments are ruled out in monetary unions implies a need for stronger integration of, and cooperation among, the countries which are members of such a union.

What needs to be done
• A return to more stable exchange rates with clear-cut rules governing adjustments which need to be effected in the face of current account imbalances. This would be achieved on the basis of improved intergovernmental coordination of monetary and fiscal policies, as well as through control of capital movements and intervention in foreign exchange markets
• Assignment of a stronger role to the International Monetary Fund (IMF) in coordinating economic policy
• Development of a strong international financial market oversight committee with the Bank for International Settlements in Basel, which would be entrusted with the task of monitoring the international financial markets
• Assignment of a stronger role to the IMF’s Special Drawing Rights, enabling them to function, in certain ways, as a ‘world currency’
• Establishment of an international insolvency court for states, which would provide for an equitable allocation of debt burdens between (private) creditors and debtors in case a given country should find itself in an unsustainable debt situation
• Global support for the provision of international public goods, including, for example, solutions for pressing environmental problems
• At the European level, promotion of the institutionalised Macroeconomic Dialogue between the social partners established to improve coordination of wage negotiations in national labour markets


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