(2007), Convergence and Anchoring of Yield Curves in the Euro Area, ECB Working Paper No 817. 14  See Christiano, Motto and Rostagno (op. cit.). 15  See Bini Smaghi, L., Il paradosso dell’euro (2008), Rizzoli. 6  BIS Review 135/2008  whole to be less proactive and more regulation-based than in the United States, where discretionary powers are broader. I would like to begin by briefly analysing government budget’s two component parts, namely automatic stabilisers and discretional measures, in order to allow me to better examine the differences between European and US policies using the same model for interpretation as I used with monetary policy. 3.1  Automatic stabilisers and discretionary budget policies  The automatic stabilisers are the component of government expenditure and revenue that automatically varies with the economic cycle, without requiring any explicit decision on the part of governments. These mechanisms are the result of the social protection and welfare system, of the institutions underlying the labour market and of various components in the taxation and public expenditure system. They depend largely on political decisions and operate in an automatic and anti-cyclical fashion, in the sense that they reduce revenue and increase expenditure when the cycle slows down, and vice versa. As far as discretionary measures resulting from specific fiscal policy decisions are concerned, their usefulness as a an anti-cyclical tool has been a matter for debate for a long time now, both in the euro area and in the United States.
Lorenzo Bini Smaghi: Economic policies on the two sides of the Atlantic – (why) are they different? Lecture by Mr Lorenzo Bini Smaghi, Member of the Executive Board of the European Central Bank, at the Collegio Carlo Alberto, Moncalieri, 7 November 2008. * 1. *  *  Introduction 1  The United States and the euro area are the two main economic and monetary areas in the world and they are reasonably similar in size, with a population of over 300 million (300 million in the United States and 320 million in the euro area) and GDP of around € billion at current prices (at the going rate of exchange of around USD 1.30 to the euro – US GDP is worth around € billion, while euro area GDP is worth around € billion). The economic policies implemented in these two areas act as a reference for the whole world’s economy. They are carefully scrutinised and compared by academics, market players and commentators. In recent years, the two economies have been compared in a largely asymmetrical way, possibly a hangover from an obsolete institutional setup and analytical reference framework. While in the United States economic policies are mainly assessed on the basis of the US economy’s underlying state, in the euro area the assessment is made on the basis not only of European economic fundamentals, but also, and indeed above all, with reference to economic policy decisions made on the other side of the Atlantic.