Much of continental Europe is in poor shape. True, the aggregate wealth of people is little changed and the social capital in museums, parks and other amenities is still intact. Yet, in the western part, the economy is failing society.

Inclusion of ethnic minorities and youth in the economy — the backbone of their self-esteem and social integration — is more lacking than ever. Among those who do participate, fewer are prospering. It is a measure of the decline that, in almost every country, the growth of wage rates has steadily slowed since 1995. What has gone wrong?

European economists speak of a loss of competitiveness in southern Europe. They suggest that output and employment are down, relative to the past trend, because wages leapt ahead of productivity, making labour too expensive and forcing employers to cut back. Taking this perspective, some German economists argue that wages need to fall in the affected economies. Others argue instead for monetary stimulus — for instance, asset purchases by central banks — to raise prices and make current wage rates affordable.