What if the euro zone’s problem was risk aversion?

- "There have been many attempts to explain the low long-term growth (productivity gains) in the euro zone:
• specialisation in unsophisticated services, where productivity is low, and deindustrialisation;
• shortfall in the innovation, R&D and higher education drive;
• labour market rigidity, which prevents the necessary adjustments in employment;
• distortion of income sharing at the expense of wage earners."
- "However, another explanation can be imagined, i.e. excessive risk aversion, which would explain:
• the high level of government expenditure and social welfare, and hence the high tax burden, which discourages corporate investment;
• the small number of innovative companies that become large corporations;
• the preference for risk-free savings (reinforced by financial regulation);
• the high level of precautionary household savings;
• the problem in terms of reallocating employment into more productive sectors."
- "If this is the right explanation, the governments would have to try to help the Europeans overcome their risk aversion (by tax incentives, public equity investors, "flex security" in the labour market, etc.)."
Natixis Flash Economics 368 20100720