Long-term Effects of the Economic Crisis

Timeframe: Completed
Project manager: Ulrika Stavlöt

The financial crisis that emerged in the fall 2008 has caused the largest decline in global economic activity since the Second World War. Even though there are some signs of world economy recovery, the strength of the economic turn is still uncertain. In addition, the long-run implications of the economic crisis are hard to grasp. How will asset prices, growth and employment be affected? What structural changes within the industrial and financial sectors will occur? How will various currencies, inflation and interest rates be affected? Lately, a large number of reforms of the financial and institutional frameworks have been presented in a rapid pace. What reforms are reasonable and how can a new financial crisis be avoided in the future?

The Member States of the European Union have been asymmetrically hit by the crisis, which puts large pressure on the European project. The Baltic States are among the hardest hit countries and the weak institutions in these countries make the recovery slower. How should the European Union deal with these issues, in particular when there are no more carrots to offer? Can an EU Member State go bankrupt and how can the European Union act if this situation would occur? In addition, the North-South divide has attracted new focus since one single monetary policy during the economic crisis hardly provided the optimal monetary response for every EMU country.

The project was initiated in 2009 and has so far resulted in a published European Policy Analysis on the European automotive industry and whether governmental support can be motivated with regard to the financial crisis. Two additional publications will be published in 2010.

1) Global macroeconomic imbalances are by many researchers seen as an important determinant of the financial crisis. What risks are associated with global imbalances and what are the adequate European preventive policies?
2) A number of psychological phenomena, such as greed and trust, have been given a lot of attention in relation to the financial crisis. What lessons can be made from psychology and how can future crises be avoided?
In addition to these commissioned analyses, a number of studies are planned that will bring light to the long-term economic and political implications of the global economic crisis.