U.S. deficits, the dollar and Europe

Abstract

This paper reviews and assesses some of the controversies related to the role of deficits in the recovery, the relation between deficits and interest rates, costs and benefits of a strong US dollar, and finally the feasibility and desirability of enhancing, assuring or accelerating Europe’s recovery through active policy moves. The authors first provide an assessment of the current situation before focusing on the characteristics of a fiscal policy-led recovery. They then turn to the appreciation of the dollar before looking at the policy options open to Europe, arguing that a temporary and modulated fiscal expansion still appears both desirable and feasible. JEL: H62, E43, E62

Keywords

• Deficits
• interest rates
• dollar
• recovery
• fiscal policy
• crisis