Eurozone: Crises, Wrong Policies and the Needed Reforms

In this chapter, we briefly illustrate the two “crises” - the global financial crisis (with the consequent Great Recession of 2008-09) and the sovereign debt crisis – causing a second recession and whose impact is long lasting in Europe. In particular, we focus on the impact of the crises on the collapse of aggregate demand – with particular reference to investment – and we present new evidence on output and (un)employment gaps. Our opinion is that the austerity measures undertaken in the area, especially in the peripheral countries, have caused stagnation and persistent unemployment
Thus, the short-run policy implication is that the Eurozone needs an “aggregate demand shock”, e.g. a massive investment plan (much bigger than the unsatisfactory “Juncker plan”). A more definite solution for the long-run problems is to realize some vital reforms in EMU’s construction and in the governance of the EU, in particular to guarantee a viable monetary union and favour a real convergence of its economies