Unless Europe adopts measures of austerity and institutional reforms soon, it could well be headed towards a decade of ultimate loss, argue Nilanjan Banik & Pietro Paganini.

Take the case of Italy. Just a few days ago, a new government was installed which has openly defined itself as populist. The two political parties that make up the Yellow-Green coalition maintain that they have really understood the people’s problems, which is something the traditional political forces have not been capable of doing.

The Italian electorate has, through their protest vote, chosen to ignore a return to economic growth, after years of depression (1.5 per cent GDP in 2017), a fall in unemployment (11.2 per cent) – above all among young people (18-25), a better control of public debt, and more substantial foreign investments. The jobs market is excessively fragmented and deregulated. Salaries remain stagnant, whereas the gap between the so-called 1 per cent of the population, the elites indeed, and the so-called forgotten has been further widened. It is a problem that is common to many EU countries.

A closer look at the European democracies suggests that it is run by the insiders made up of pensioners, trade union leaders, public sector workers and big farmers. The outsiders, consisting of a small number of immigrants, the youth and small private entrepreneurs have little to say in policy matters. It is a classic case of a socialist democracy in which the insiders are myopic, care too much about present benefits, and are deliberately voting parties to power that support their cause. On the contrary, the outsiders are quite powerless.

Even issues such as changes in labour immigration laws have been stalled. A flexible labour immigration clause is expected to resolve issues related to the dearth of a young skilled labour force. The brain drain from developing countries such as India and China has helped fuel economic growth in the US, but not in Europe.

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