Watson Institute for International and Public Affairs

Policies to Overcome Stagnation: The Crisis, and the Possible Futures, of All Things Euro

December 6, 2016

The following is the abstract of Mark Blyth's article Policies to Overcome Stagnation: The Crisis, and the Possible Futures, of All Things Euro.

Read the full article here.

This article argues that the Europe's continuing economic underperformance, particularly in the eurozone, is neither a function of insufficient information (policymakers do not know the right policies) nor ideology (policymakers are unable to recognize the right policies due to ideological priors). Rather, this article places the continuation of policies that cause stagnation in a longer historical context. Building upon the insights of Kalecki (1943) regarding the political limits of full employment policies, it is argued that the shift from a regime that generated inflation, low profitability, and a high degree of equality to one that generates deflation, high profitability, and inequality has hamstrung the ability of policymakers to respond positively to the situation at hand. This has generated structural pressures for political realignment across cases that compound the economic problems of stagnation while exacerbating tensions between different European ‘Varieties of Capitalism.’ The result is a set of ‘second-best’ strategies that lead to second-best outcomes in both politics and economics that further stress the already stressed economies and policies of Europe.