Secular Stagnation in the Eurozone, Paul de Growe - Vox-EU, January 30th 2015

 

Secular Stagnation is more visible in the Eurozone than in any other region in the Developed World. In 2014, real GDP was even lower than in 2008, whereas the US and the EU10 (the 10 EU member states from outside the single currency area) recorded a relatively strong recovery.

The reason, Paul de Growe explains, is the existence of asymetric external balances within the Eurozone. Indeed, Southern countries had accumulated current-account deficits and became debtors when the crisis started, whereas the northern ones became creditors.

The problem, is that the burden of the adjustments has been carried almost exclusively by the debtor countries, creating a deflationary bias. Therefore, the solution suggested by the author is to implement government investment programs in Northern countries, and especially in Germany, where there is an important lack of investment in public infrastructure. (Read more)

 

Europe Needs Pro-Growth Policies, Not Stagnation Policy – Michael Heise, The Wall Street Journal, March 11th 2015

 

Monetary and fiscal stimulus are not the solution to Secular Stagnation, Micheael Heise, Chief economist at Allianz SE Munich, underlines. For him, the Eurozone has to address the roots of the problem, and among them the decline in total factor productivity, by improving the investment environment through tax incentives, better regulations and a policy to support innovation. He adds that previous experiences show that a steady consolidation, combined with pro-growth reforms, can bring back confidence and gradually restore private demand.

Among other structural reforms, he suggests more labor market flexibility and well-targeted social security systems. (Read more)

 

 

Eurozone Stagnation is a greater threat than debt - Wolfgang Münchau, Financial Times, October 19th 2014

 

Wolfgang Münchau, director of Eurointelligence, underlines that the Eurozone is threatened by the possibility of a wide economic depression, with very low inflation, over the 10 to 20 next years. The consequences are high unemployment, rising poverty and stagnation in real and nominal wages, but also a decline in public sector services and in public investment. And with very low inflation, the debt burden is expected to remain at a high level in real terms.

 

A lower exchange rate of the Euro is not the solution to this problem, the author underlines, because the Eurozone is a large semi-closed economy, i.e. most of its trade takes place within its borders. Therefore, he considers that “Secular stagnation is a lot more dramatic than a debt crisis“, which leaves the Eurozone with 3 solutions: 1) Going toward a political union; 2) Accepting Secular Stagnation; 3) Breaking up the Eurozone. (Read more).

 

Escaping the Stagnation Trap: Policy Options For the Euro Area, OECD, January 2015

 

Many countries in the Eurozone seem unable to overcome the legacies of the crisis, with the persistence of high unemployment, high inequality, and low trust, the OECD underlines. Indeed, the Eurozone’s GDP per capita is not expected to reach back its 2007 level before 2017 at the earliest.

This is why it is imperative to address this persistent stagnation by a comprehensive stimulus package that includes structural reforms to support investments, trade, employment, as well as small firms and entrepreneurship, along with more monetary and fiscal policy, the report suggest.

These reforms could boost the level of GDP by nearly 2.5% after 5 years, according to the OECD. (Read more).