Europe and the Challenge of Re-Starting Growth

The Eurozone is arguably the greatest economic casualty of the 2008 financial crisis. Whilst both the US and China have managed to exceed 2008 GDP levels, Europe continues to languish and in many cases (notably, Greece, Spain and Portugal) is worse relative to the impact of the Great Depression. If Europe in its current form is to survive, notes the economist Karl Aiginger, Director of the Austrian Institute for Economic Research (WIFO), then restarting growth is both necessary and (more importantly), feasible.

But the new growth should not be more of the same, which is to say, attempted via a series of “beggar thy neighbor” internal devaluations (the economics of which are highly questionable). Rather Europe’s policy makers must embrace a new growth path that is more dynamic, socially inclusive and ecologically sustainable. More importantly, it needs to go beyond metrics such as GDP growth, embracing a model which aims to lower carbon dioxide emissions, and also reduce unemployment and income differences. In effect, Ainginger is calling for a new kind of social contract that measures “economic success” via different outcomes of a country’s socio-economic system (poverty risk, inequality, youth unemployment), as well as advocating an ecological pillar that evaluates environmental outcomes. Gone is the “low road model” of fiscal prudence and low inflation to all other countries and wage cuts to sustain an unsustainable economic mercantilism. Rather, Professor Ainginger urges Europe to embrace a more dynamic, more inclusive, more sustainable, and more stable European Union, one which serves the needs the real economy, rather than the narrow interest of the continents rentiers.

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