International Law and the Limits of Macroeconomic Cooperation
The macroeconomic policies of states can produce significant costs and benefits for other states, yet international macroeconomic cooperation has been one of the weakest areas of international law. We ask why states have had such trouble cooperating over macroeconomic issues, when they have been relatively successful at cooperation over other economic matters such as international trade. We argue that although the theoretical benefits of macroeconomic cooperation are real, in practice it is difficult to sustain because optimal cooperative policies are often uncertain and time variant, making it exceedingly difficult to craft clear rules for cooperation in many areas. It is also often difficult or impossible to design credible self-enforcement mechanisms. Recent cooperation on bank capital standards, the history of exchange rate cooperation, the European monetary union, and the prospects for broader monetary and fiscal cooperation are all discussed. We contrast the reasons for successful cooperation on international trade policy.