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One Europe or Several? Causes and Consequences of the European Stagnation

Jan Fagerberg () and Bart Verspagen

No 20140410, Working Papers on Innovation Studies from Centre for Technology, Innovation and Culture, University of Oslo

Abstract: 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 summarise 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 center.

New Economics Papers: this item is included in nep-eec
Date: 2014-04
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