The role of macroeconomic policy in Euroland: a case study of Ireland

The economic crisis has impacted particularly adversely on Eurozone countries, in addition to the USA. In this paper, it is argued that, even under the current, more relaxed, rules of the Stability and Growth Pact (SGP), those countries, such as Ireland, are being forced to adopt pro-cyclical fiscal policy in the short term which will prolong the recession. Even in the longer term, when private expenditure has recovered, the constraints on eurozone macroeconomic policy will prevent the achievement of sustained full employment across the member countries. A careful cost benefit analysis should be undertaken to investigate whether Ireland should leave the eurozone. However, economic commentators appear to take Ireland's continued membership as a given. If Ireland were to restore its capacity to conduct independent monetary and fiscal policy, then the introduction of a Job Guarantee to achieve full employment and low inflation would be appropriate, as opposed to an indiscriminate Keynesian fiscal stimulus.