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The event that tested the euro zone reappeared. The latest shock came from Italy, where Prime Minister Matteo Renzi's total defeat in the constitutional referendum led to his resignation. Italy is the third largest economy in the Eurozone and is quite important. Renzi's resignation may not be a decisive event. But as long as the euro zone cannot achieve a widely shared prosperity, it is vulnerable to political and economic shocks. Complacency is a serious mistake.

    At least things are getting better. From the first quarter of 2013 to the third quarter of 2016, the real gross domestic product (GDP) of the Eurozone grew by 5.5%. The unemployment rate fell from its peak of 12.1% in June 2013 to 9.8% in October 2016. Therefore, the growth rate is surpassing the potential growth rate. However, this improvement did not offset the damage caused by the 2008 financial crisis and the 2010-2012 Eurozone crisis. In the third quarter of 2016, the total real GDP of the Eurozone was only 1.8% higher than the first quarter of 2008. What is striking is that in the second quarter of 2016, actual domestic demand in the euro zone was 1.1% lower than that in the first quarter of 2008. This extremely weak demand should not have arisen. This represents a huge failure.

    The direct way to confirm this failure is to look at nominal demand. In the second quarter of 2016, nominal demand in the euro area was only 6.9% higher than in the first quarter of 2008. So what level should the nominal demand be? Assuming that the actual trend growth rate is 1%, the inflation target is close to 2%. Then the nominal demand should have grown by about 3% every year. If policymakers had achieved this, then nominal demand would have increased by about 28% from the first quarter of 2008 to the second quarter of 2016. This request must be too much. However, nominal demand in the United States increased by 23% over the same period. In addition, weak demand has also had a strong downward impact on inflation. Since January 2009, the annual core inflation rate has never exceeded 2%, with an average of only 1.2%.

    A serious challenge lies in the differences in the economic performance of the member states of the euro zone. Many member states (especially Italy) have experienced severe recessions, and some countries have experienced stagnant growth (especially France). According to data from the research organization The Conference Board, from 2007 to 2016, in terms of purchasing power parity, Germany’s per capita real GDP grew by 11%, France had little change, and Spain and Italy fell by 8% and 11, respectively. %. Spain’s per capita real income may not return to pre-crisis levels until around 2019. It seems unlikely that Italy’s per capita real income will return to pre-crisis levels before 2025. The painful fact is that the Eurozone has not only been weak overall, it has also become a machine that creates differences in the economies of member states (rather than bringing about convergence).

    The Italian banking industry is full of problems, with non-performing loans of approximately 360 billion euros. However, this is mainly the result of a long and severe economic downturn. If this situation continues, there may be more bad debts. Italy's inability to reach a consensus on solving the banking crisis in a way that not only satisfies the various restrictions of Italian politics, but also abides by European rules (requiring self-help rather than advocating external bailouts) is now the crux of Italian politics.

    However, a welcome development is that there are signs that the competitive landscape in the euro zone is changing. One indicator is relative salary. Before the crisis, the average wages in France, Italy, Spain, Greece and Portugal rose sharply relative to Germany. Since then, this trend has been reversed at least to some extent. If other conditions remain the same, this should help restore the internal balance of the euro zone economy.

    However, the pre-crisis current account deficits of the eurozone countries affected by the crisis disappeared mainly because their actual demand fell sharply. In the third quarter of 2016, the actual total domestic demand in Italy was 10% lower than that in the first quarter of 2008, and Spain was nearly 11% lower, and its decline after the crisis was as high as 19%. In the same period, actual demand in Germany increased by 8%. However, the current account surplus as a share of GDP rose from 7% in 2007 to just below the forecast value of 9% in 2016. This is another failure of the euro zone's internal adjustments, which makes it overly dependent on huge external surpluses.

    The weak aggregate demand and the huge differences in the economic performance of countries after the crisis mean that things will happen in the euro zone at any time. Indeed, the situation is likely to stabilize. But the interaction between economic and financial events and political pressure is unpredictable and dangerous.

    What the Eurozone needs most is to abandon austerity politics. In the latest "Economic Outlook" (Economic Outlook), the Organization for Economic Cooperation and Development (OECD), which is mainly composed of rich countries, convincingly (though belatedly) called for the implementation of related structural reforms along with fiscal expansion to support growth. This is most important for the Eurozone, where demand is weakest and its fascination with fiscal deficits is the most exaggerated. In the large economies of the Eurozone, net investment in the public sector is close to zero. This is stupid.

    Unfortunately, the possibility of change is very low. Those important countries (most importantly the German government) regard public sector borrowing as a crime, regardless of its cost. The political and economic impact of the disintegration of the Eurozone is too great, and it is best for the Euro to stick to it forever. But now the euro is thought to be related to the long-term economic stagnation. Those member states capable of changing this view should ask themselves whether the view is really reasonable. The Eurozone should no longer live dangerously, but should start to live sensibly.