How to Avert the Risk of Deflation in Europe: Rethinking the Policy Mix and European Economic Governance

Abstract

This policy brief discusses the risks of deflation for the European economy. It critically evaluates the European economic governance for not having averted this risk and discusses how a more coordinated approach to both fiscal policy and collective wage bargaining, both aiming at national inflation targets in the context of macroeconomic dialogue, could help stimulate aggregate demand and move the European economy away from the brink of deflation.