The stagnation of the economy in the Euro area since 2000 is closely connected to the dominance of purely long-run supply-side
oriented policies in the Euro area. 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 social reforms 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 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) are important to improve potential economic growth, this
will however only materialise if effective demand is sufficiently high.
Keywords:Demand Business Cycle Euro Area Economic Policy European Union
Forschungsbereich:Makroökonomie und öffentliche Finanzen