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Paolo Manasse, Isabella Rota Baldini: What’s Wrong with Europe?

The US and Europe; a tale of two cities: while the economic recovery is well underway in the United States, with growth back to 2.5 percent and falling unemployment, the Eurozone economy is struggling to recover. Why? We argue that the major differences between the two areas go a long way in providing an explanation. In short, unlike the U.S, the Eurozone is an heterogeneous federation of independent states, an area of ​​exchange where markets for goods, labor and financial assets are segmented by national boundaries and often scarcely competitive. We discuss how the crisis has slowed down the process of convergence between European countries, bringing to light the unresolved structural problems that affect many countries. Structural rigidities in prices and wages have exacerbated the recessionary impact of demand shocks, the credit crunch and budget consolidations. Moreover, the crisis has exposed the fragility and the inadequacy of the (new and old) European institutions, revealing serious faults in their overall design.

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