Europe’s Elusive Growth Consensus

PARIS – In most European countries, GDP per capita is currently lower than it was six years ago. In some cases, like Greece, Italy, and Ireland, it is more than 10% lower. Even in Germany, where it is higher, average growth over the last six years has been anemic.

It is hard to overestimate the adverse consequences of this state of affairs. The European Union has lost six million jobs since 2008. Many younger people who have entered the labor force in recent years have been unable to find a job corresponding to their skills and are bound to pay a price for it throughout their careers. Governments have been struggling with the impossible task of balancing their books despite dwindling revenues. And, worst of all, companies have begun discounting Europe in their investment plans, paving the way for a permanent loss of aggregate momentum.

In such a situation, growth ought to be at the top of the policy agenda. But, while the EU and national governments pay lip service to it, they have not devised an effective economic-revitalization strategy.

In the eurozone, the hope is that calmer sovereign-debt markets, slower fiscal adjustment, and supportive monetary policy by the European Central Bank will help trigger a sustained recovery. This may be the case, but the recovery that is now expected will not suffice to offset the adverse consequences of the last six years. The productivity gains that failed to materialize during this period are lost forever: many people who have experienced long-term unemployment or have left the labor force are unlikely to return to work, and Europe will be lucky if productivity growth accelerates somewhat and approaches pre-crisis trends – better than nothing, but hardly satisfactory.