6. Escaping Fragmentation and Secular Stagnation

Abstract

The EU has been impacted by multiple crises due to economic and geopolitical drivers. These crises have left scarring effects and may lead to fragmentation with serious permanent consequences. This takes place against the background of secular stagnation which makes the policy response more difficult. The main response strategy is the NGEU mechanism, based on public investment and structural reforms. It should deliver sustainable growth and structural change that allows for exit from the multiple crises―pandemic, geopolitical, energy, inflationary―and puts the European Union on a path of twin transformation (digital and green), reverting the drift towards secular stagnation. NGEU is an effective policy tool, provided it acts through policy packages of public investment and structural reforms and allows for time to complete the reform cycle. Its effectiveness must be seen in the context of a new policy mix fit to address the multiple-crises framework.