Revamping Europe’s Tattered Social Contract
Europe's economy needs deep supply-side reforms, so that fiscal stimulus translates into sustainable long-term growth, not just temporary spurts and further increases in countries’ debt ratios. But too many call for structural reforms without specifying their content or considering the social, historical, and political context.
WASHINGTON, DC – For most of the beginning of 2014, the eurozone seemed to be in a state of recovery – weak and unsteady, but nonetheless real. In April, the International Monetary Fund estimated that overall GDP growth would reach 1.2% this year, with slowly declining unemployment, up from its previous forecast of 1% growth. With the threat of unsustainably high interest rates in the countries of the eurozone periphery having disappeared, the path to moderate recovery was supposedly open, to be followed by some acceleration in growth in 2015.
While it is important not to overreact to quarterly figures, recent data, as well as some of the revised data for the first quarter, are deeply disappointing. The pessimism of two years ago has returned – with good reason.
Italy is in an outright recession, and, far from showing hoped-for signs of vitality. French growth is close to zero. Even Germany’s GDP declined in quarterly terms in the first half of the year. Finland, a staunch supporter of firm austerity policies, is in negative territory for the first half of the year.