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Improving European economy: Draghi’s three Ps of mon policy, Summers’s three Ts of fiscal policy and Buti’s three Fs for structural reforms

Summary:
Marco Buti of European Commission in this voxeu piece: The current slowdown and lacklustre medium-term growth prospects also indicate that the fiscal, monetary and structural policy mix needs to be changed. As Mario Draghi stated in his speech in Sintra (2019), monetary policy needs to remain patient, persistent and prudent. Fiscal policy needs to fulfil the three Ts as identified first by Larry Summers (2008): timely to be effective, targeted by focusing on high multipliers expenditure and – possibly – temporary. While the jury is still out on the desirable fiscal trajectory in presence of ultra-low interest rates, there is little doubt that a long-lasting boost of public investment should be undertaken. One such example would be quality-investment to ease the environmental

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Marco Buti of European Commission in this voxeu piece:

The current slowdown and lacklustre medium-term growth prospects also indicate that the fiscal, monetary and structural policy mix needs to be changed. As Mario Draghi stated in his speech in Sintra (2019), monetary policy needs to remain patient, persistent and prudent. Fiscal policy needs to fulfil the three Ts as identified first by Larry Summers (2008): timely to be effective, targeted by focusing on high multipliers expenditure and – possibly – temporary. While the jury is still out on the desirable fiscal trajectory in presence of ultra-low interest rates, there is little doubt that a long-lasting boost of public investment should be undertaken. One such example would be quality-investment to ease the environmental transition. Complementing Draghi’s three Ps for monetary policy and the three Ts from Summers, I propose three Fs for structural reforms: they should be feasible to be effective in the short term instead of aiming for unrealistic goals; forward-looking, for instance regarding environmental issues; and fair, by incorporating distributional concerns and moving away from the perception of reforms as ‘blood and tears’.

Joining the letters, they spell TFP, a fitting acronym to capture today’s economic and policy predicament in Europe.

Phew! This is all encompassing. Add these adjectives to Prof Sashi’s flowchart of reforms and you have a good template of putting every macro policy/reform under the sun..

Amol Agrawal
I am currently pursuing my PhD in economics. I have work-ex of nearly 10 years with most of those years spent figuring economic research in Mumbai’s financial sector.

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