Markus Marterbauer, Ewald Walterskirchen

Neglecting demand and cycle in the Euro area

19 Seiten · 4,93 EUR
(August 2006)

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From the introduction of the editors:

The stagnation of the Euro area economy since the end of 2000 is closely connected to the dominance of purely long-run supply-side oriented policies. Markus Marterbauer and Ewald Walterskirchen show that while exports and profits soared, domestic demand has been weak. The neglect of cyclical and demand factors appears to be the major deficiency of the EU policy guidelines, the Lisbon strategy and the Brussels/Paris (European Commission/OECD) consensus on growth policy. Monetary policy in the Euro area is only slightly expansionary, fiscal policy is at the best on a neutral stance and structural policies are deterring consumers. Cyclical and demand considerations are not only denied in the short term, but also in the medium term. In fact, growth differentials in the period between 1995 and 2005 can largely be explained by rising house prices as well as by the adoption of anti-cyclical policies in Anglo-Saxon and Scandinavian countries rather than by "structural reforms". In the long run, there prevails an interaction between supply and demand factors as well. Higher expenditure on R&D and education (input factors) will lead to higher economic growth (output) only if capacity utilisation is sufficient to induce additional investment.