Europe 1992: Macroeconomic Implications.

The article focuses on the macroeconomic implications of Europe 1992. Only a few years ago, Europe was beset with stagnation and mass unemployment. Under the heading of Europe 1992, the discussion has now moved from Eurosclerosis to the growth potential of the internal market, and Europessimism has yielded to pervasive Europhoria. Together with the sharp fall in oil prices in 1987, the disinflationary effects of dollar depreciation, and expansionary policy measures, Europe 1992 has set the stage for growth. The paper shows an outlook for European economic growth that two years ago would have been considered extravagant. Where stagnation had almost seemed inevitable, with discussion of work-sharing a routine response, the prospects have now shifted altogether. This paper first assesses the macroeconomic implications of the internal market project. That assessment highlights the sources of improved macroeconomic performance, its likely magnitude, and its spillover to the rest of the world. Three special areas, the prospects for European protectionism, the implications of financial integration, and the fiscal effects of the present exchange rate system has been discussed.