Analysis & Opinions - Project Syndicate

Europe's Economic Dilemma

| Oct. 30, 2017

CAMBRIDGE – Europe faces a serious problem. Although economic activity has recently increased, the eurozone has lost the ability to respond to the next downturn when it happens, as it inevitably will.

The European Central Bank deserves credit for the economic improvements that have occurred in the past few years. In a speech at the annual gathering of central bankers in Jackson Hole, Wyoming, in 2014, Mario Draghi, the ECB’s president, explained that three things could improve economic performance in Europe:

  • fiscal expansion by the country that had the capacity to do it (Germany);
  • structural reforms in Italy and France;
  • a change of monetary policy.

But Draghi went on to predict that Germany would not create a fiscal deficit and that Italy and France would not undertake the needed structural reforms. He concluded that the ECB would have to stimulate growth by reducing interest rates, which would increase net exports by creating a more competitive euro.

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For Academic Citation: Feldstein, Martin.“Europe's Economic Dilemma.” Project Syndicate, October 30, 2017.