The 2008 crisis marked the beginning ofa lost decade for many countries - and many people - in theEuropean Union (EU). The crises of 2008 and 2012 halted, andin some countries undid, a decade of growth and economicconvergence across the EU. This report argues that theeconomic shocks revealed large differences in the resilienceof individual economies, associated with differences in thequality of country-level institutions that shaped theabsorption and response to these shocks. The report is intwo parts. Part one uses an inclusive growth framework thatassesses the trends in economic growth, the sharing of thatgrowth, and its resilience. Part two looks closer at a keyaspect of resilience: what are the key institutions thataffect an economy’s resilience or capacity to respond toshocks. This report finds that in many European countries,growth was shared with low-income households; but thesehouseholds were shielded less well during downturns. Duringthe crises, the poorest fifth of households in both CentralEurope and Southern Europe saw deeper drops in incomes andfor longer periods than the median household. The reportputs a special emphasis on a country’s membership of theEuropean Monetary Union (EMU) - the eurozone. The reportfinds that resilience of inclusive growth varied across EUcountries, when faced with the global financial crisis of2008 and the euro crisis of 2012, because of the quality ofinstitutions. This report finds that boosting resilience ofEU member states should start with improving the realexchange rate institutions. Resilience and flexible andcoordinated real exchange rate adjustments are short-termmeasures to cushion shocks and support adjustment.
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