On the ground in many European countries, locals routinely talk nostalgically about life before ‘the crisis’. They don’t define the term any more precisely because everyone knows what it means: The Great Global Recession that began in 2008.
Life was easier before the crisis with month-long August vacations at the seaside affordable for working-class families and modest take-home pay still sufficient to fund a quality lifestyle after paying the high tax rates endemic in Europe.
But more than a decade later, the recession still hangs over many countries like a long-term change in the weather. The overall GDP in some economies has failed to climb back to the levels seen in 2007. The intervening years have not just been a lost decade but also destructive ones that badly affected the level of optimism, youth employment, and new investment.
Although the crisis began in the US with toxic derivatives peddled by Wall Street investment banks, it had graver consequences in Europe. The administration of President Barack Obama met the calamity head-on by writing down massive amounts of debt and allowing some historic firms to fail.
In constrast, toxic-laden banks in Europe were kept afloat even as the intrinsic weakness inherent in the Eurozone was laid bare. After they were strengthened through a range of measures, Europe’s banks are now seen safer but unprofitable.
But even then, they pose a danger – many are struggling to survive, and are unable to provide lending to businesses, households and support to innovative ventures that could renew growth.
At such a time, countries often employ currencies devaluation measures to support their economies. Yet, in Europe, because of the unified currency it was impossible to use exchange rate devaluations to help countries hit particularly hard by the 2008 recession.
Nobel Prize-winning economist Joseph Stiglitz noted the structural problems years ago as he warned of a lost decade in Europe. “Europe has very talented people and if country after country is not working, it has to be a systemic problem,” Stiglitz said in 2014. “The basic problem is that it’s not an optimal currency area.
Combining flawed structure with flawed policies has been devastating.”
The crisis also exposed the fragility of the European Union itself. When it led the world in industrial innovation, Europe was a patchwork of diverse languages, cultures, and countries that competed with one another – partly the very reason for its industrial strength. The competition eventually gave rise to armed conflict, which well-meaning leaders sought to address through the formation of the EU following WWII.
But such proud nations were never all-in to sublimate their interests in a common state. Voters in France and the Netherlands rejected an EU draft constitution in 2005, and the UK never joined the euro. It has never had anything like the national economic unity found in the US, so in reality it is something halfway between a country and a free-trade zone.
Like a complex contraption that is constantly modified rather than redesigned to address its flaws, the EU churns along, still afloat but vulnerable to various factors. As well, it is unlikely some European countries could thrive anyway today as independent economies without the backfill support of the union. Their fate is now deeply wedded to the policies of the EU.
The lost decade also had another serious long-term impact: Europe’s citizens have grown that much older and are now one of the oldest populations in the world. Of the 20 nations with the oldest populations globally, 17 are in the Western Europe. As well, birthrates are far from the replenishment level needed in a modern society to avoid population decline without migration, according to data published by Eurostat, the EU statistical office.
The birthrate should be 2.1 per woman of childbearing age to maintain a population without inbound migration, while the EU average is 1.6.
And an aging population places increasing strain on governments and economies to provide retirement and medical benefits while at the same time the number of working age residents is in decline, lowering the tax base.
There was some good news last week as EU-wide unemployment dropped to its lowest level since the crisis began. Yet it came at the same time projections said the overall EU economy will grow an anemic 0.2 per cent for the year.
In their moment of truth as they honestly gaze into the mirror, working-class residents and politicians alike are acknowledging that Europe never really covered from the crisis. It will likely be seen as a watershed by future historians, perhaps even as the tipping point when Europe began to decline.
Nostalgia for the enthusiasm, prosperity, and stability between the end of World War II and 2008 is already widespread and palpable.
What Europe’s leaders can do to finally shake free of the crisis and the crisis-mentality remain a big and complex question, one that should be at the very top of all political discussions and policymaking. With some of the brightest minds on the planet, perhaps Europe can find the right formula, but it will require a will and unity that is far from evident today.
Jon Van Housen and Mariella Radaelli are editors