Today, CEPII – the French leading institute for research and expertise on the world economy – launches its second Policy Brief “Can the Euro Area Avoid a “Lost Decade”?” which examines the risks for the Euro area to enter a period of lost decade.
A lost decade refers to an extended period of low or negative growth triggered by an economic crisis and that could have been avoided by the use of efficient crisis policies. The risk to the world’s developed economies of a lost decade was highlighted early on in the 2007-2008 crisis. Now, five years on from the severe recession of 2009, the risk appears much more of a concern for the Euro Area.
We find that there is currently a moderate to high risk of production capacities in the Euro Area being permanently impaired. The risk relates mostly to the prolonged period of stalled investment and persistent unemployment, with its detrimental effect on human capital. In addition, paying off past debt will be painful to both the public and private sectors, in particular in the context of a low inflation environment.
The policy response in the Euro Area has been hesitant. It emphasised structural reforms over cyclical policies. While structural reforms are a good lever for growth in the long term, they need to be accompanied by much stronger cyclical policies, especially given the recessionary environment. In short, there is a danger the decade could be lost because of an excess of confidence in the ability to fight a major economic crisis with structural reforms only.
A lost decade refers to an extended period of low or negative growth triggered by an economic crisis and that could have been avoided by the use of efficient crisis policies. The risk to the world’s developed economies of a lost decade was highlighted early on in the 2007-2008 crisis. Now, five years on from the severe recession of 2009, the risk appears much more of a concern for the Euro Area.
We find that there is currently a moderate to high risk of production capacities in the Euro Area being permanently impaired. The risk relates mostly to the prolonged period of stalled investment and persistent unemployment, with its detrimental effect on human capital. In addition, paying off past debt will be painful to both the public and private sectors, in particular in the context of a low inflation environment.
The policy response in the Euro Area has been hesitant. It emphasised structural reforms over cyclical policies. While structural reforms are a good lever for growth in the long term, they need to be accompanied by much stronger cyclical policies, especially given the recessionary environment. In short, there is a danger the decade could be lost because of an excess of confidence in the ability to fight a major economic crisis with structural reforms only.
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About the authors:
Benjamin Carton is economist at CEPREMAP.
Jérôme Héricourt is Research Fellow at CEPII and Assistant Professor at University of Lille 1 and EQUIPPE.
About CEPII:
CEPII (Centre d’Études Prospectives et d’Informations Internationales) is a French institute that produces independent, policy-oriented economic research to help understand the international economic environment and challenges in the areas of trade policy, competitiveness, macroeconomics, international finance and growth.
Press Contact:
Sophie Piton
presse@cepii.fr
+ 33 (0) 1 53 68 55 23
____________________________________________________________
About:
"L’Europe aura sa décennie perdue", sur le blog du CEPII, le 26 mai 2014.
"L'Europe entre dans sa 'décennie perdue'" ,article paru sur leMonde.fr le 20 mai 2014.
About the authors:
Benjamin Carton is economist at CEPREMAP.
Jérôme Héricourt is Research Fellow at CEPII and Assistant Professor at University of Lille 1 and EQUIPPE.
Fabien Tripier is Scientific Advisor at CEPII and Professor at University of Lille 1 and CLERSÉ.
About CEPII:
CEPII (Centre d’Études Prospectives et d’Informations Internationales) is a French institute that produces independent, policy-oriented economic research to help understand the international economic environment and challenges in the areas of trade policy, competitiveness, macroeconomics, international finance and growth.
Press Contact:
Sophie Piton
presse@cepii.fr
+ 33 (0) 1 53 68 55 23
____________________________________________________________
About:
"L’Europe aura sa décennie perdue", sur le blog du CEPII, le 26 mai 2014.
"L'Europe entre dans sa 'décennie perdue'" ,article paru sur leMonde.fr le 20 mai 2014.
