The Challenge of Economic Rebalancing in Europe
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The Challenge of Economic Rebalancing in Europe

Perspectives for CESEE Countries

Edited by Ewald Nowotny, Doris Ritzberger-Grünwald and Helene Schuberth

In the long aftermath of the acute global financial crisis of 2008/09, “rebalancing” the economy with new sources of growth and productivity remains a persistent necessity. This book addresses the resulting trade-offs and challenges. These needs, and the corresponding policy challenges, are especially prevalent in Europe, in particular Central, Eastern and South-Eastern Europe. On this issue, this book contributes lessons learned from earlier balance sheet recessions. It also addresses the often overlooked link between macroeconomic imbalances and economic inequality. Further contributions focus on the interaction between monetary policy and financial stability, adding a regional perspective to these important issues.
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Chapter 10: Inequality, the crisis and stagnation

Till van Treeck


The inequality of income and wealth is one of the defining issues of our time, in terms of both its social and its macroeconomic implications. In this chapter, I focus on the macroeconomic implications of inequality. In particular, it is possible to identify four themes on which there seems to be growing consensus among many economists especially in the various heterodox traditions, but also increasingly in the mainstream of the economics profession. The first theme on which there is growing consensus is the notion that the rise in inequality has contributed in an important way to the unsustainable rise in household debt in the United States and ultimately to the financial and economic crisis starting in 2007 (e.g. Palley, 1994; Dutt, 2006; Frank, 2007; Cynamon and Fazzari, 2013; Fitoussi and Stiglitz, 2009; Rajan, 2010; Kumhof and Ranciere, 2010; Mian and Sufi, 2014). Secondly, there is the by now widely held view that rising inequality at the international level has contributed to the so-called global imbalances in terms of national current account positions (e.g. Kumhof et al., 2012; van Treeck and Sturn, 2012; Hein and Truger, 2012; Stockhammer, 2013; Behringer and van Treeck, 2013; Belabed et al., 2013). Thirdly, there has recently been a shift of the focus of attention from merely looking at income inequality to analysing the longer-term implications of income inequality for wealth inequality (e.g. Piketty, 2014; Saez and Zucman, 2014).

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