Rebuilding Europe's Common Future: Combining Growth and Reform in the Euro Area

Adam S. Posen (PIIE), Ajai Chopra (PIIE), Ángel Ubide (PIIE), Paolo Mauro (PIIE), Jacob Funk Kirkegaard (PIIE) and Nicolas Véron (PIIE)
PIIE Briefing
14-5
December 2014

Europe must adopt policies to grow and reform at the same time to reverse its downward economic slide, excessively low inflation, high unemployment, and the risk of a lost decade or more. Seven years after the start of the global financial crisis in 2007, the prospect of secular stagnation threatens to fracture the political and social fabric of the euro area. This PIIE Briefing of six essays by economists at the Peterson Institute for International Economics offers a roadmap for policymakers to guide Europe out of its current self-defeated policy mix. The main message of this volume is that monetary and fiscal policies must more actively work in tandem  with productivity-enhancing structural reforms (such as deregulation and deepening the single market) to shift the euro area toward a path of higher growth and stable prices. The policies recommended here are well short of revolutionary, but they would replace the politically accepted but dangerous narrative of fiscal austerity, internal devaluation, and moral hazard, which has led to the current economic malaise.

Contents

Introduction
Adam S. Posen and Ángel Ubide

1 Stimulating Demand to Foster Structural Reform in the Euro Area
Ajai Chopra

2 The European Central Bank Must Act Aggressively to Restore Price Stability in the Euro Area
Ángel Ubide
Data disclosure: The data underlying this analysis are available here [xlsx].

3 Role of Fiscal Policy to Spur Growth in Europe
Paolo Mauro

4 An Agenda for Reform of the Euro Area Labor Markets
Jacob Funk Kirkegaard
Data disclosure: The data underlying this analysis are available here [xlsx].

5 Overhaul of EU Financial System Needed to Foster Growth
Nicolas Véron