What accounts for the euro zone’s growth problem?

The euro zone’s potential growth continues to decline, due to the decline in productivity gains. It is often claimed that this decline is due to a shortfall of investment (public and private) and that economic policy measures must be taken to lift investment. But this analysis is incompatible with the fact that the euro zone’s capital intensity has risen: there is no capital shortfall in the euro zone. This leaves two possible explanations for the euro zone’s weak productivity gains and low potential growth: A problem regarding not the quantity but the quality of capital; A problem of low labour force skills.