“Hungary’s ‘goulash communism’ was less harsh than other regional variants”
The European economy has slipped into stagnation since the sovereign debt crisis of 2011. Between 2011 and 2021, the average annual growth rate of the European Union was around 1.2%. Compare that with the average US growth rate of around 4.2% in the same period and you can see why Europe is slipping behind. Even the UK, itself plagued by stagnation during this period, managed to eke out a growth rate of around 1.5%.
There are many causes of stagnation. Perhaps the most important is the European obsession with competitiveness in this period. After the sovereign debt crisis of 2011, the core countries in the European Union imposed harsh packages of reforms on the peripheral countries to increase their competitiveness. These reform packages, more commonly known as “austerity”, were designed to suppress wage growth in these countries. Less wage growth meant less consumption, and this meant less growth.
But the austerity policies were not simply designed to inflict pain for the sake of it. They were designed to increase the international competitiveness of the countries that implemented them. Keeping a lid on wages was supposed to help keep costs down and increase export sales in these countries, which would replace the consumption growth lost through austerity.
These policies worked insofar as they increased Europe’s international competitiveness. In 2011, the EU had a current-account surplus with the rest of the world of around 0.6% of its GDP; by 2021, this surplus
