The result has been excess savings in the post-crisis period caused by the need for all three sectors to repair their balance sheets, while over-indebted firms and households in some countries have been confronted with higher credit premia, further depressing investment. Investment indeed remains well below pre-crisis levels. The damage caused to the economy by these dynamics has been massive.
Youth and longterm unemployment has risen significantly in the euro area, with “hysteresis” effects estimated to have notably reduced labour supply. This feeds back into a slower potential growth rate, and potentially for some time, given the strong sectoral dimension to the crisis and the need for extensive re-skilling and reallocation of workers.