The contrast between the macroeconomic management of the US and that of the eurozone during the past five years could not be greater, writes Paul de Grauwe. While the European Central Bank has remained cautious in manipulating the interest rate (it has not changed it for almost two years), the US Federal Reserve has exhibited an extreme form of activism. Similarly, the aggregate budget deficits in the eurozone have barely changed since 2001 when the recession set in, while the US government has moved from a surplus to a deficit exceeding 5 per cent of gross domestic product.
Where does this difference come from? There is no doubt that part of the difference can be traced to the fact that the eurozone is a diverse group of countries with very different economic conditions. This makes it difficult for the eurozone authorities to come to a consensus about the conduct of monetary and fiscal policies, and to move quickly in the face of changing economic conditions.
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