Eurozone: Crisis, Policies and Reforms

This chapter reviews the recent economic situation, trends and perspectives of the Eurozone. First, we summarize the main features of the double crisis that hurt the euro area since 2008–2009, including the more recent slow recovery. Second, we discuss the policies adopted in the Eurozone during and after the crises, including the monetary policy by the European Central Bank, that became—some years later with respect to the Fed and other central banks—progressively more accommodative over time; but we also emphasize the limits of fiscal policies, in particular their “austerity” approach. Third, we stress the need to change the current macroeconomic policies, to make more robust the economic recovery (in countries like Greece and Italy real output is still below the pre-crisis levels) and improve the social condition, severely deteriorated because of the long crisis. Macroeconomic policies should be targeted at the support of aggregate demand and especially investment, that in most euro area’s countries has collapsed. The consequent improvement of the economic and social situation will also make more feasible the adoption of institutional reforms, necessary to guarantee the continued existence of the euro in the long-run.