The case for using public investment to boost growth in the Eurozone is overwhelming

One year after the Eurozone’s much hyped ‘recovery’, signalled by some green shoots in the second quarter of 2013, the region’s quarterly economic growth is flat again. Even Germany’s growth prospects have been revised downward, and recent IMF estimates point to an almost 40 per cent chance of recession for the Eurozone. The main reason is the lack of determination of policy makers to end the Eurozone crisis. Will they continue to muddle through and pave the way for decades of low growth? Or will governments and the European Commission do ‘whatever it takes’ and change the fiscal stance as demanded recently also by ECB president Mario Draghi?

In this piece, written for LSE EUROPP, I review three different explanations for the lack of recovery in the Eurozone, and argue that there is now an overwhelming case or using public investment to boost growth in the Eurozone, both at the regional and at the national level.

However, while economically the case for public investment is crystal clear, I also note that policy makers need now to find ways to communicate to their electorates that it is time to change both faulty narratives about the Eurozone crisis, debts and deficits, and faulty policies.

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