Ezoneplus working paper / Eastward Enlargement of the Eurozone 17B
This paper reviews the macroeconomic policies and performance of the three Nordic EU countries. The experiences of Denmark, Finland and Sweden from the turbulent economic developments of the 1990s and from adjusting their public sectors to fiscal consolidation are illustrating, not least for the discussion of the future challenges of. The economic crises and structural changes of the 1990s as well as the choices done in monetary and fiscal policies can be viewed as a part of adjustment to integration and globalisation, especially to financial deregulation. In this paper the monetary and fiscal policies of the three Nordic EU countries is compared to the averages of EU15. The economic performance of these countries is assessed in terms of growth and employment. The main conclusions of the paper are: (i) the fixed (but adjustable) exchange rate regimes may be costly in terms of output and employment if they are not fully credible; and (ii) large economic fluctuations create easily equally large changes in fiscal balances, which may exceed the limits of the Stability and Growth Pact.