Eurozone lack of public investment limits economic growth

Growth was uneven across eurozone countries, with Germany

A lack of public investment following the 2008 financial crisis has limited the economic growth of countries within the eurozone, according to a study published by the German Friedrich-Ebert-Stiftung (FES) on Thursday.

The FES said that within the European Monetary Union, government investments are currently around 20 percent below the 2009 level.

“While the European Central Bank’s (ECB) monetary policy has helped to mitigate the consequences of the recent crisis, it still lacks essential elements for more stable growth and prosperity in Europe,” the FES said.

In Germany, additional credit-based investments have led to a higher employment rate as well as to a 1.3 percent annual gross domestic product (GDP) growth, the study found.

It warned that transferring Germany’s “restrictive wage policy” to other European countries would “not lead to more growth and prosperity in Europe.”

In order to increase public investment while ensuring the sustainable stabilization of the eurozone in the event of crises, the FES called for “stronger coordination and cooperation” among the European countries.

A common eurozone budget with significant financial resources for an “anti-cyclical European fiscal policy” would have positive growth and stabilization effects on the eurozone countries, according to the study.

“Wage undercutting and the tax reduction race in Europe” needed to stop because the race to the bottom would be damaging “not only from an economic point of view but also from a social and political point of view,” the study noted.

Describing the lack of financial investments as a “mistake”, the FES noted that the eurozone’s four major economies — Germany, France, Italy and Spain in particular — would benefit from “greater macroeconomic stability.” Enditem

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