Europe’s 4% Solution

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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.

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