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So, why is Europe not doing more to return to growth? European leaders would probably say, first, that they have been forced to address more urgent matters since the Greek crisis erupted in 2010. But, while it is true that much policy attention has been devoted to fighting financial fires, this is not a sufficient answer: since the summer of 2012, when ECB President Mario Draghi convinced markets that the eurozone would not break up, Europe has had enough breathing space to address the growth imperative, but has barely done so.
The second explanation is that there is agreement on the goal but not on the means. Again, there is some truth to this. Keynesians argue that Europe would grow if only policy were focused on generating aggregate demand; they blame precipitous fiscal consolidation and insufficiently aggressive monetary easing for the loss of momentum. Their opponents, by contrast, see structural weaknesses and internal imbalances as the major impediment to growth; for supply-siders, it is the slow pace of economic and social reforms that is to blame.
This lack of consensus on the nature of the problem arguably hinders agreement on a solution. But, again, this is not an entirely convincing explanation. Disagreements such as this have arisen before – and not only in Europe. Given sufficient will, there could be ample room for compromise. As the Nobel laureate economist Paul Samuelson famously said, the reason we have two eyes is to keep one on supply and the other on demand.
A deeper, more worrying explanation is that Europe does not have a strong desire for growth. In fact, some have become convinced that, given the environmental consequences, economic growth does more harm than good and that the crisis should be regarded as an opportunity to shift to a more frugal economy. The growth agenda, according to this view, is a Trojan horse for ecological neglect – for example, through more business-friendly environmental regulation or shale-gas exploration.
Others perceive calls for growth as a pretext to weaken employment protection or accept greater income inequality. They fear that, rather than delivering the promised benefits, painful reforms would tilt the distribution of power and income in favor of employers...
To end the current stalemate and unlock its economic potential, Europe needs a new “compact” (to use the current jargon) that addresses simultaneously the demand shortfall, impediments to productivity gains, and the quality of growth. Designing and implementing such a package is far from impossible – several elements are already available. What is lacking is a political platform on which Europe’s necessary growth conversation could take shape. It is urgently needed.