Euro zone: What would growth have been since 2007 without the increase in the public debt, and what can we learn?

The euro zone’s real GDP level is currently 9% higher than the 2007 level, but its public debt ratio is currently 19 percentage point of GDP higher than in 2007. Euro-zone governments have therefore on average injected income corresponding to 1.6 pp of GDP via the fiscal deficit in their economies over the 12 years from 2008 to 2019 . If we make a simplistic assumption of a fiscal multiplier of 1, we see that, without the boost provided by the expansionary fiscal policy, euro-zone real GDP would in 2019 be 10 pp lower than the 2007 level: this reflects the extreme weakness of the euro zone’s spontaneous growth momentum despite the ultra-expansionary monetary policy. The euro zone’s public debt ratio is now stabilised, and it seems difficult to increase it much more. Euro-zone growth will therefore be its "spontaneous" growth, i.e. sluggish growth on both the demand side (due to the lack of fiscal stimulus implemented since the crisis) and the supply side (as potential growth is only 1.1% per year due to the low productivity gains). It is indeed regrettable that the considerable fiscal stimulus implemented from 2008 to 2019 (the public debt ratio is 19 percentage points of GDP higher) has not been used to invest in order to restore potential growth .