Demand effects of financialisation and changes in functional income distribution in the EU

Policy Brief

25/04/2016

The paper investigates the effects of changes in the distribution of income and wealth on private aggregate demand, which consists of consumption, investment and net exports. Estimates are based on a panel of 12 EU countries covering the period 1980-2011. The average demand regime is found to be wage led. We find strong effects of debt and property prices. In the period 1997-2007, i.e., the decade prior to the crisis, debt and property prices have been the main drivers of aggregate demand, in particular in the Non-Eurozone and southern European countries. The finding lends support to the hypothesis of the existence of an inherently unstable debt-driven growth model for many countries.

This has important policy implications. First, finance and debt are potentially powerful drivers of growth, but they also can undermine economic stability. The financial sector needs to be tightly regulated and monetary authorities have to lean against markets. Second, a wage-led growth strategy is economically feasible. In times of crisis wages should not be cut, but increased steadily. Third, the short-run effects of a wage-led growth strategy would be modest compared to the damage of a financial crisis. Fiscal policy thus is needed for economic stabilisation.

Read the Policy Report

Find all related publications
Publications
28/05/2024

The real effects of Next Generation EU

Recovery Watch Series
14/05/2024

Tightening welfare belts again?

FEPS YAN Series
13/05/2024

Toward a progressive geopolitical EU

FEPS YAN Series
13/05/2024

How can RepowerEU consolidate recovery?

Recovery Watch series
Find all related Progressive Post
Progressive Post
30/05/2024

For the sake of Europe: getting serious about strengthening European Works Councils

08/05/2024

Strengthening territorial cohesion and the single market

08/05/2024

A good jobs compass for the internal market: creating its human face for the mid-21st century

Find all related events
Events
Upcoming
03/07/2024
Brussels, Belgium

The transformative power of economic democracy

Towards democratic practices in public spending, the workplace, urban planning and public services
Past
21/05/2024
FEPS HQ (Expert meeting)

Social Europe in the new EU Economic Governance framework

Integrating social investment & social policy actors
29/05/2024
Szeged, Hungary

Taxing the richest in the EU

For a just, social and green transition in Hungary
Find all related news
News
18/01/2024

FEPS President at Euronews talk-show ‘Brussels, my love?’

29/11/2023

Economic Democracy

FEPS launches an initiative on Economic Democracy
09/10/2023

Tax the rich

A European Citizens' Initiative
14/09/2023

Call for tender – Researcher on inflation

This call for tender closed on 03/10/23
Find all related in the media
In the media

Orbánov boj z zunanjim sovražnikom ni bil kos inflaciji

by DELO 28/05/2024
In an article in Delo, László Andor criticises Viktor Orbán government's economic policies, such as not allowing Hungary to join the euro area, which he believes would have helped curb inflation. He also criticises the government for blaming external enemies such as the President of the European Commission, to cover up its own failures.

Ex-EU-Kommissar Andor: Orbán gerät an die Peripherie

by Austria Presse Agentur 28/05/2024
"Former EU Commissioner Andor: Orbán is relegated to the periphery" Austrian news agency APA interviewed FEPS Secretary General László Andor on Europe's political situation ahead of the upcoming EU elections.

Ласло Андор: Европа трябва да създаде нов модел за икономически растеж

by dir.bg 14/03/2024
'Europe must create a new model for economic growth'. Interview by Laszlo Andor, FEPS Secretary General

FEPS President at Euronews talk-show ‘Brussels, my love?’

by Euronews 15/01/2024
Panellists discussed topics including EU fiscal rules reform, German farmer's protests, and the decision of Charles Michel to quit his job early to run for MEP.