Macroeconomic Coordination Policies: Why and How?: From Europe to MERCOSUR

Jan 2005
This paper was prepared within the framework of "Deeper Integration of MERCOSUR: Dealing with Disparities", a joint initiative between the Integration and Regional Programs Department and the Operations Department 1 of the Inter-American Development Bank. Given the relatively lower political incentives for interdependence in MERCOSUR than in the European experience, economic disturbances and economic lobbies may prevail in times of crisis increasing the risks of derailing the integration process. The authors of this paper draw from the lessons from the European experience of macroeconomic coordination since the early days of the European Economic Community and discuss the main differences between MERCOSUR and the European Union regarding the economic and institutional environment. In the first section of the paper, they combine the lessons obtained from the European experience and the fundamental disparities to be faced in the MERCOSUR to design a specific macroeconomic policy coordination agenda for the region. In the second section they account for the European history of macroeconomic coordination, whereas the third section analyses the main disparities constraining the cooperation policies in MERCOSUR. In light of the previous sections, the fourth part of the study will discuss the appropriate design of macroeconomic coordination in the region, with the fifth section containing the conclusions.