In the absence of countryspecific monetary policy, and with national fiscal policy bound by rules, labour market flexibility needed to become an important channel of adjustment.21 This is added to the fact that labour mobility across national borders is traditionally low, with migration responding considerably more slowly to regional labour shocks than in the United States.22 The crisis itself had a more pernicious and long-lasting effect on the euro area labour market through the increase in “structural unemployment” and “skills mismatch”, with the unemployment rates of those staying out of work for longer and those with lower skills increasing more in relation to the average unemployment rate.
Against the backdrop of the rise to power of populist parties in many crisis countries, Italian Prime Minister Matteo Renzi, for instance, said in an interview with the Financial Times just before Christmas: “We can defeat this demagogy, apathy and populism by betting on the growth and employment of a new social Europe.” And he added: “We have to be careful with our finances, but it has to be less about commas and decimal points.” Ladies and gentleman, are growth and fiscal solidarity really at odds with each other, as is implicitly assumed by Renzi with his reference to commas and decimal points?