Abstract
The global economic crisis that began in 2007 has exposed weaknesses in European economies. It has shown that the financial sector has not been adequately regulated and supervised, that governments and individuals have overspent and that European economies have suffered, and are still suffering, from structural problems. These structural problems include rigid labour markets that fail to react to economic downturns and divide the population into insiders and outsiders.
To handle the financial crisis, governments and central banks used a variety of policy measures, such as tightening bank supervision, providing loans and guarantees, and nationalising financial institutions. Central banks in the EU, including the European Central Bank (ECB), provided liquidity to the banking system. Eventually, the ECB assumed the role of lender of last resort. In addressing the economic and debt crisis, the quality of government response also mattered. Several governments reacted swiftly, others with a delay but then effectively and still others had to apply for financial assistance with conditions attached.
The task now is to prevent future crises and to put the EU and European countries and regions on the path to economic growth. In order to achieve this, governments, in collaboration with one another and with the EU, should undertake fiscal consolidation measures, bearing in mind that government deficit and debt reduce investor confidence, destabilise economies and incur costs that burden future generations. Alongside fiscal consolidation, it is structural reforms that create lasting growth.
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