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Investing out of the crisis. ISIGrowth’s first Policy Brief

Europe can move towards an inclusive, sustainable and innovation-friendly growth-path as long as it renews its economic policy agenda. First of all austerity policies and labour market structural reforms should be replaced by a combination of innovation, demand-management and industrial policies

The European Union has been harshly hit by the economic and financial crisis of 2008: in some member countries its impact has been much worse than that of the Great Depression.

Overall, the macroeconomic evidence sends two key messages. First, the effects of the Great Recession have been more dramatic in the European Union than in other developed economies which used more active counter-cyclical policies (e.g. the U.S.), leading to increasing unemployment and poverty across the E.U. Second, European internal divergence has skyrocketed since 2008, with Southern countries (i.e. Greece, Italy, Spain, Portugal, but also Finland) drifting away from Germany.

The research carried out in the first eighteen months of the EC-funded ISIGrowth project provides micro and macroeconomic evidence that the current EU policy mix grounded on fiscal austerity and labour market structural reforms has been pain with no gain, increasing vulnerability of citizens without restoring steady growth and creating jobs. Quantitative results are supported by the qualitative study based on interviews with civil society organisations, found in ISIGrowth, published in the working paper 33/2016.

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