Stable public finances require stronger business investment

Economic recovery in Europe is being held back by the unprecedented weakness of business investment. Despite a secular decline in business taxation and labour market reforms that have boosted the power of capital relative to labour, the ratio of investment-to-GDP across the EU is at a 60 year low. Rather than investing their profits, firms are sitting on huge holdings of cash.

This is depressing economic activity and forcing governments to run big fiscal deficits. Unfortunately, government policies across Europe threaten to keep things this way.

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