For nearly two months, a wave of social unrest has brought crowds onto the streets across several European countries as a persistent rise in the cost of living creates a heavy burden. Protests spanning Albania, Italy, France, Belgium, Germany, Portugal, and Spain stem from various motives, but rising housing costs stand out as a primary grievance, particularly for younger people, worsening since 2010.
While housing is established as a basic condition for economic security, the European Commission put forward a legislative proposal to address the issue in September. American economist Paul Krugman tells Euronews that the problem extends beyond Europe and accepts rent caps as a temporary measure with an immediate impact to contain speculation. From an economic perspective, Krugman states that the issue involves building more homes and removing construction restrictions, noting that property prices have fallen significantly in places where building has been liberalised.
Krugman acknowledges the current housing market conditions are difficult to bear. Coverage of recent demonstrations in Italy cited a 21-year-old university student reporting that single rooms in Rome have reached 1,200 euros. The European Students' Union warned in an opinion on the Commission's housing plan that thousands of young people and students are excluded from higher education by speculative practices, while the European University Association noted that students living away from parents spend nearly 40% of their monthly income on housing. The European Commission and European Parliament also acknowledge that the financialisation of housing, driven by investment funds treating properties as profit-generating assets, contributes to sharp price increases.
Since building new homes in several European countries takes between three to five years, Krugman favours a pragmatic approach involving second-generation rent stabilisation models. The 2008 Nobel laureate notes that New York is stabilising rents under a mayor who allows incentives and construction, arguing that building and regulation can coexist. New York's programme subjects annual rent increases to an index setting a maximum percentage and offers tax exemptions of up to 40 years to private developers who provide a substantial proportion of regulated units. Berlin's model, extended through 2029, limits rent increases to 10% above the comparable local average while exempting homes first occupied and let after October 2014. Krugman views these schemes as imperfect tools that will not last long if building proceeds, noting they span a few years at most while delivering rapid positive effects.
Beyond housing, France's public debt of 119% of Gross Domestic Product causes market anxiety, reviving concerns seen during past sovereign debt turmoil. Krugman stresses that a credible path toward fiscal sustainability would eliminate the need for short-term austerity, adding that the French issue is straightforward because the retirement age is low. He expresses concern over a potential crisis similar to Portugal's experience between 2010 and 2012, warning that a French default could unleash systemic imbalances. Such a crisis would prove catastrophic for Europe and potentially bring down the entire euro system. Unlike peripheral countries like Portugal, France represents the second-largest European economy and has transitioned from being considered too big to fail to being too big to be saved, as bailing out 20% of euro area GDP is impossible due to resource limitations.
Europe also faces external shocks from United States trade tariffs and Chinese overproduction flooding the European Union market with subsidised products. Krugman indicates Europe risks partial deindustrialisation, though he believes the continent's car industry can regain competitiveness. The adjustment period presents challenges, with the risk that recovery from past mistakes could arrive too late if the industrial ecosystem disappears entirely. Consequently, Krugman argues that buffers are necessary. Although known for defending open markets and supporting free trade, he recommends playing defence given the current geopolitical landscape and concludes that temporary protectionism is unfortunately necessary.
