Europe's nations and regions

Nicholas Crafts, 15 January 2019

Brexit in 2019 and the banking crisis in 2007 to 2009 are usually seen as unrelated events. This column argues that they are in fact closely connected. The austerity policies embarked on in response to the fiscal damage resulting from the banking crisis triggered the protest votes of left-behind voters, which at the margin allowed Leave to win the referendum vote. The implication is that the economic costs of the banking crisis are much larger than is usually supposed.

Tito Boeri, Prachi Mishra, Chris Papageorgiou, Antonio Spilimbergo, 11 January 2019

The claim by populist leaders to have a monopoly on representing ‘the people’ stands in contrast with the concept of liberal democracy, which is based on pluralism where different groups represent different interests and values. Using data from several waves of the European Social Survey, this column demonstrates that individuals who belong to associations are less likely to vote for populist parties. Alexis de Tocqueville appears to have been right when he wrote almost two centuries ago that civil society is a key defence of liberal democracy.

David Comerford, Sevi Rodriguez Mora, 04 January 2019

Populists in Europe are contesting the perceived benefits of economic integration between countries. This column uses data on trade frictions to estimate the long-run impact of trade frictions on GDP if countries in Europe were to be more or less integrated. Negative between-country impacts, such as from Brexit or an EU collapse, imply a GDP reduction of between 1-3%. The potential trade benefits of a 'United States of Europe', on the other hand, may be an order of magnitude greater for its members.

Jacques Bughin, Christopher Pissarides, 02 January 2019

Europe’s social contracts to protect their citizens from socioeconomic risks are based on an inclusive growth model characterised by a more egalitarian view of revenue generation and distribution. But this model is under strain, with various global trends placing upward pressure on inequality that could intensify. This column suggests that keeping the essence of Europe’s current inclusive growth model does not preclude it from adapting its current social contracts to protect its citizens, whatever the disruptions that lie ahead.

Luc Laeven, Peter McAdam, Alexander Popov, 10 December 2018

There are good arguments both in favour and against the idea that more labour market flexibility will deliver benefits to an economy during a downturn. This column presents novel evidence on this question, using data from Spain during the 2008–09 credit crunch. The results show that credit-constrained firms grow faster if they are subject to less strict firing and hiring restrictions, as long as they are technologically able to substitute labour for capital. The findings provide an argument in favour of more flexible labour laws.

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