One Europe or several? Causes and consequences of the European stagnation

The European economy is currently in a slump, the worst since the 1930s.
Although this is often seen as a consequence of the financial crisis
that hit the capitalist world in 2007-8, we argue that many of the
problems that Europe faces today have long-term roots to do with the
fact that Europe consists of countries with quite different dynamics and
capacities for adapting to changes in the global (and European) economic
environment. We start by comparing Europe's growth performance to that
of other parts of the world, and then consider some popular but arguably
erroneous explanations of the present crisis. Subsequently, we delve
into the development of the external balances of various European
countries. This leads to the identification of three European
"archetypes", characterized by different adaptability and performance,
i.e., the North, the South and the East. We explore the consequences of
globalization and European economic integration for the economic
performance of these different country groups. The effects have been
quite asymmetric; the Southern countries in particular have benefited
little if at all. Finally, we summarize the lessons from the analysis
and consider the implications for policy. What is needed is a European
growth policy, properly adapted to the different capacities across
Europe, that places the welfare of the European population as a whole at
the centre.

Keywords: Euro crisis; economic growth; Europe