From austerity to stagnation how to avoid the deflation trap ; From austerity to stagnation how to avoid the deflation trap: The independant annual growth survey 2014

Abstract

Five years after the beginning of the financial turmoil in 2008, the euro area isstill in crisis. However, there are some positive signs which have emerged. Somesay that the main imbalances are on their way toward resolution. Others claimthat the euro's survival of what has proven to be a major crisis is a step forward increating a prosperous and sound European Union. Some may rationalize that theEuropean integration process has always progressed by desperate responses tocritical situations. Some may even interpret migration flows from peripheral countriesto the core, to escape the misery of the crisis, as showing that the optimalityof the currency area has improved.Our analysis of the state of the European Union and the euro area is strikinglydifferent. We think that the policies conducted so far, in particular austerity, havefailed and that such a failure has a cost. Imbalances have not been solved but onlydisplaced, from current account to unemployment, from public deficit to inequalities.Despite tremendous efforts, private or public debt ratios are still high anddeleveraging still stands as the only objective. A large majority of European citizenslive in countries still stuck in the crisis and for whom recovery is an abstractconcept (table and Figure 1). We think that alternative policies were possible. Inaddition, we believe that other policies can and should be implemented now toreally exit the crisis.