Europe’s 4% Solution

The eurozone’s 2% annual inflation target is not a magic number, and it is irrational to let it determine the overall macroeconomic framework. There are times when 3-4% is better than 2%, and Europe is at such a moment.

WASHINGTON, DC – This is a momentous summer for Europe, because both the eurozone and the European Union could be in danger of unraveling, despite the important steps toward a banking union and direct recapitalization of Spanish banks taken at the June meeting of eurozone leaders. Implementation of the proposed reforms is lagging; there may be legal challenges to the European Stability Mechanism in Germany; and the Netherlands and Finland seem to be backtracking on some parts of the agreement.

Even in a worst-case scenario, some degree of intra-European cooperation will surely survive. But it is hard to see how the EU as we know it could survive even a partial disintegration of the eurozone.

Those who argue that one or more countries on the eurozone’s periphery should take a “holiday” from the euro underestimate both the economic and political repercussions of such a move. The sense of failure, loss of trust, and the damage inflicted on so many if two or three countries had to leave would shake the entire Union.

To continue reading, please log in or enter your email address.

Registration is quick and easy and requires only your email address. If you already have an account with us, please log in. Or subscribe now for unlimited access.


Log in;