Not only do Europe’s governments have far higher revenue as a percentage of their GDP, they also show a broader quota of social security contributions in respect of direct and indirect taxation (15% of GDP in the euro area, as against 7% in the United States), which tends to make the system more gradual. Fourthly, redistributive policies are also expressed in other ways than through government expenditure, for instance through the regulation of labour markets. On the basis of a series of indicators such as minimum wages, the legal safeguards protecting those in employment and the unemployment benefit replacement rate, the United States is at a lower level than the 20 average level for the EU. One way of measuring the magnitude of automatic stabilisers is the budget’s overall sensitivity to cyclical fluctuations in the economy, which can be expressed in terms of the elasticity of the primary budget balance (as a percentage of GDP) in relation to the output 21 gap, in other words the gap between real revenue and its potential level. If budget policy is anti-cyclical, the coefficient should be positive (in other words, it increases in a phase of expansion and decreases in a recession). An OECD study gives us a correlation of 0.48 for 22 the euro area and 0.34 for the United States. The lower overall budget responsiveness to the economic cycle in the United States can be ascribed both to lower current expenditure elasticity and to low tax responsiveness compared with most of the countries in the euro area.
And this is despite the fact that we have encountered adverse shocks in that period, not least the slowdown in emerging market economies and renewed tensions in the euro area banking sector. So what accounts for this improved resilience of the euro area economy? Certainly the recovery cannot be explained by “endogenous” or underlying growth forces, which were unusually weak in its early phase. Nor can several of the “exogenous” factors that have supported previous euro area recoveries provide an answer. First, in the past euro area growth has been closely interdependent with world trade, with external demand playing a central role in supporting the recoveries after the dotcom crash and the Lehman bankruptcy. Since mid-2014, however, world trade has weakened considerably and last 1/6  BIS central bankers' speeches  year grew at the slowest pace since the financial crisis. Yet the correlation with euro area output has more or less broken down. Growth has accelerated even as world trade has fallen back. Second, though fiscal policy has stopped being a headwind – as it was during the 2011–13 period – it has not been much of a tailwind to the recovery either. With governments still undertaking a necessary process of balance sheet repair, fiscal policy between 2013 and 2015 was basically neutral and provided only a mildly positive contribution to growth last year. This contrasts with both the post-Lehman and post-dotcom recoveries where the fiscal stance was more expansionary.1 Third, the contribution of the supply side to the recovery has so far been limited.