An economy that staggers in and out of recession. An inflation rate that is barely above zero. An ageing and falling population. It was inevitable, therefore, that IMF managing director Christine Lagarde should be asked: Is Europe the new Japan?

The answer from the IMF boss was that, yes, in some respects the eurozone was displaying some symptoms of “Japanification”. Her advice was that Europe should follow its own version of the three-arrow policy being pursued by Japan’s prime minister Shinzo Abe. Abenomics, as it is known, involves more monetary stimulus in the form of quantitative easing, more fiscal stimulus in the form of higher public spending, and structural reform to make the economy more efficient. Lagarde suggested a similar package could help Europe avoid the risk of recession, which the IMF puts at 40%.

“There is a serious risk of that [recession] happening,” she said. “But if the right policies are decided, if both surplus and deficit countries do what they have to do, it is avoidable.”

Poor economic data from Germany allowed finance ministers from outside the eurozone to pile on the pressure.

George Osborne said the slowdown across the Channel was affecting UK growth. Germany, though, was resisting pressure to run down its budget surplus to boost growth. German finance minister Wolfgang Schäuble said writing cheques was not the answer.

By the end of the week it was clear that the eurozone’s two biggest economies were at loggerheads, with France saying it would not reduce its budget deficit to hit the 3% target set by Brussels until Germany did more, and Berlin arguing that it was up to Paris to move first.

Real GDP growth made up the ground lost to the 2008 crash in the 1st quarter of 2011 and though sluggish has remained positive. The Euro are as a whole has yet to make that ground. Only Germany, Austria and Belgium have outperformed France.

Employment participation rates for the key 25-54 demographic though off their pre crash peak of 2008 by a slightly more than 2% remain considerably than the Euro area as a whole and much higher than the US. Long term interest rates are at all time lows reflecting investor confidence, inflation is less than 1%, and its current account balance as a percentage of GDP is mildly negative , though, improving and significantly better than the US.

France is a good example of how public expenditure and strong labour laws acts as a buffer to to the privations of a severe economic downturn. Austerity and relaxed labour regulation imposed by the right wing ideologues on the countries of Southern Europe have devastated those economies causing wide spread and wholly unnecessary suffering. The right wing dogma attributing Europe's woes to excessive debt that can only be mitigated by draconian cuts in the face of a weak economy have led to the real threat of a deflationary spiral that would further weaken European economies and be much harder to recover from. Europe, like the UK and the US need to stimulate their economies back to full employment and adequate sustainable demand. The money borrowed to accomplish this would be offset by a combination of increased revenues from positive growth, a return to progressive, avoidance proof taxation and a 2-3 % rise in inflation. Debt forgiveness though laudable in intent does nothing to address the long term underlying causes of the havoc wrought by the unregulated, heads we win, tails you lose, cowboy free marketeers and banksters.

Mr Draghi said the ECB's commitment to buy bundles of bank debt, known as asset backed securities (ABS), and offer cheap loans to banks in order to stimulate lending was the correct first course of action in an environment where borrowing costs are already very low.  "When you reach the lower bound you only have one instrument. It’s very clear that if we are going to go down this route [of QE], we have a spectrum of interest rates and spreads which is already very low. That’s why we started with addressing flows in the private sector, because we believe flows will directly affect private lending."

Mr Draghi has said he intends to steer the size of the ECB’s balance sheet back to the levels seen at the start of 2012, indicating an increase in assets of as much as €1 trillion (£800m). ,,,The euro is not a currency. It is a political project with political goals and intent, to show the world that the nations of Europe can exist with one currency. Well that's proved hogwash. They are disparate, divided countries. Trade amongst them, remove sales tariffs, but don't pretend they can function as one entity. Bank bailouts were forbidden by the treaty of Rome, I believe.

If that treaty is void, what else are they ignoring that they created to bind them? Oh, that's right. Nothing, because Lisbon made all treaty self amending - they can change it without our permission or consent. Such is the dream of demented communists, socialists and troughers who have no interest aside form lining their own pockets with tax payers cash.Just exactly what deflation index is so horrifying a prospect for the economy? I don't see school fees dropping; medical expenses and insurance defy gravity; I don't see car prices falling; my risk insurance premiums only go up; electricity, rates and taxes levitate on their own; housing, thanks to large doses of money printing, is more expensive and rents are being urged higher...so what is the crucial expenditure that I am going to defer because prices are falling, damaging the economy beyond repair? It sure as hell isn't these bulge bracket "non-discretionary" items in the average monthly basket. I suppose the spotty gurus in the banks think that because food, clothing, TV screens and cell phones are falling in price, we are all going to wander around wretchedly skinny, naked and suffering withdrawal symptoms from being TVandCellphoneless, while we wait for a bargain? So let's get real...it is not about deflation, certainly not of anything measured by CPI indices...it is about zombie banks and zombie assets, so why not ask the geniuses poring over the CPI figures to publish a pricing index of what they are really wanting to watch?,,,hmmm...They are more worried about pension funds having to accept write off of their government debt.. Which will be coming if deflation sets in. Debt will rise as a percentage of GDP and as incomes drop then the debt is less affordable... Also I would like to point out here that everyone who seems to think that falling prices are a good thing are as dumb as a box of rocks....If there is deflation and prices are falling do you not think that salaries will fall too?? How are businesses that get less for their product going to carry on paying the same wages??

A survey measuring business activity in the eurozone shows the economy remains "stuck in a rut", according to the company behind the report. The eurozone purchasing managers index (PMI) fell to 52 in September, down from an initial estimate of 52.3.

Anything above 50 indicates expansion, but at this level, Markit said, the overall picture is one of an economy struggling against multiple headwinds. However, separate figures showed retail sales rose 1.2% in August from July.  And compared with August the previous year, retail sales were 1.9% higher.

"It may be that retail sales were lifted in August by people determined to enjoy their summer holidays after a difficult year. There may also have been a boost to retail sales coming from squeezed consumers looking to make the most of the summer sales in some countries," said Howard Archer, economist at IHS Global Insight. Markit said that France saw solid declines in both manufacturing production and service sector activity. The contraction in Italy was centred on the service sector, as manufacturing output expanded.  On Thursday the European Central Bank (ECB) detailed plans to buy assets to boost the economy. Markit's chief economist, Chris Williamson, said the latest PMI survey added to pressure for the ECB to expand its asset purchase plan. Meanwhile the Chancellor George Osborne said the weakness in the eurozone was "probably the greatest immediate economic risk" to the UK. 40% of the country's exports are destined for the eurozone.

He urged businesses to look further afield, to places such as Asia and South America. "Too many of our small and middle-sized businesses have felt daunted about entering into export markets. That's not the case for small and medium-sized companies for example in Germany," he told the Institute of Director's conference in London.

After Berlusconi was sidelined and the boring Enrico Letta was replaced by the sympathetic and purposeful 39-year-old Matteo Renzi as the head of government, many thought that Italy was finally on the right track. But it's not...On the contrary: The land is stuck in a recession. Its levels of sovereign debt, the number of bankruptcies and the rate of unemployment are perpetually setting new records. As a result, some Italian political leaders have long sought a multi-billion euro growth stimulus program -- a call that new European Commission President Jean-Claude Juncker is likely to heed. The magnitude and form of such a program, however, still needs to be determined so that it at least maintains the illusion of conforming with the Stability and Growth Pact. But without many other changes in Italy, including its grasp on reality, simply injecting money isn't likely to change much. "For 20 years," economic expert Daniel Gros told La Repubblica newspaper recently, Italy has been claiming that others need to "give it another year, then you will see our wonderful reforms." And even Mario Draghi -- the Italian president of the European Central Bank, which has been flooding the continent with cheap money, especially in crisis flashpoints like Italy -- bluntly admonished the country in August for failing to implement substantive structural reforms ...

But it's not that Italy is even lacking in money. The assets of Italian banks and insurance companies have risen by over €1.2 trillion since 2008. But manufacturing asset bases have, by contrast, fallen by €200 million. It's a grim distribution: the one sector doesn't seem to want to invest, while the other is unable.

Italians themselves face a similar situation. On average, every Italian has about €4,000 more in net assets than the average German, but wealth is even less evenly distributed in Italy than it is in Germany, weakening domestic demand: The rich have everything, the poor can't afford anything.

Earlier this month, the Court of Justice handed down two decisions on appeals against European Commission decisions which had found payment card systems to infringe the Article 101 TFEU prohibition against anti-competitive agreements.  These judgments highlight the proper test to be applied both by the competition authorities and by the courts when considering whether payment card systems - and any other forms of horizontal cooperation agreements - breach EU competition law.  In its judgment on the French card payment system, Cartes Bancaires, the Court of Justice allowed the CB group’s appeal against the General Court judgment of 2012, finding that the reasoning had been defective and that the Court had misinterpreted and misapplied Article 101(1) TFEU. MasterCard’s appeal against the General Court’s 2012 judgment upholding the Commission prohibition decision against MasterCard's multilateral interchange fees (“MIF”) for cross-border payment card transactions within the EEA was less successful.  The Court dismissed the appeal, upholding the General Court’s judgment and the original 2007 Commission decision.  It does however also mark important issues around the proper tests to be applied when considering whether payment card systems include restrictions that bring them within the scope of the Article 101(1) prohibition and, where they do, the tests to be applied to whether those agreements nevertheless meet the criteria for exemption under Article 101(3).  The appeal in the MasterCard case follows the Commission’s acceptance of binding commitments from Visa Europe to cap interchange fees for Visa’s credit cards and to facilitate cross-border competition within the EEA, and also legislative proposals from the Commission to cap interchange fees for both consumer debit and credit cards in the EU.

All of the suffering in Europe – inflicted in the service of a man-made artifice, the euro – is even more tragic for being unnecessary, writes Joseph Stiglitz

“If the facts don’t fit the theory, change the theory,” goes the old adage. But too often it is easier to keep the theory and change the facts – or so German chancellor Angela Merkel and other pro-austerity European leaders appear to believe. Though facts keep staring them in the face, they continue to deny reality.

Austerity has failed. But its defenders are willing to claim victory on the basis of the weakest possible evidence: the economy is no longer collapsing, so austerity must be working! But if that is the benchmark, we could say that jumping off a cliff is the best way to get down from a mountain; after all, the descent has been stopped.

But every downturn comes to an end. Success should not be measured by the fact that recovery eventually occurs, but by how quickly it takes hold and how extensive the damage caused by the slump.

Viewed in these terms, austerity has been an utter and unmitigated disaster, which has become increasingly apparent as European Union economies once again face stagnation, if not a triple-dip recession, with unemployment persisting at record highs and per capita real (inflation-adjusted) GDP in many countries remaining below pre-recession levels. In even the best-performing economies, such as Germany, growth since the 2008 crisis has been so slow that, in any other circumstance, it would be rated as dismal.

The most afflicted countries are in a depression. There is no other word to describe an economy like that of Spain or Greece, where nearly one in four people – and more than 50% of young people – cannot find work. To say that the medicine is working because the unemployment rate has decreased by a couple of percentage points, or because one can see a glimmer of meager growth, is akin to a medieval barber saying that a bloodletting is working, because the patient has not died yet. Extrapolating Europe’s modest growth from 1980 onwards, my calculations show that output in the eurozone today is more than 15% below where it would have been had the 2008 financial crisis not occurred, implying a loss of some $1.6 trillion this year alone, and a cumulative loss of more than $6.5 trillion. Even more disturbing, the gap is widening, not closing (as one would expect following a downturn, when growth is typically faster than normal as the economy makes up lost ground).  Simply put, the long recession is lowering Europe’s potential growth. Young people who should be accumulating skills are not. There is overwhelming evidence that they face the prospect of significantly lower lifetime income than if they had come of age in a period of full employment.

Meanwhile, Germany is forcing other countries to follow policies that are weakening their economies – and their democracies. When citizens repeatedly vote for a change of policy – and few policies matter more to citizens than those that affect their standard of living – but are told that these matters are determined elsewhere or that they have no choice, both democracy and faith in the European project suffer. France voted to change course three years ago. Instead, voters have been given another dose of pro-business austerity. One of the longest-standing propositions in economics is the balanced-budget multiplier – increasing taxes and expenditures in tandem stimulates the economy. And if taxes target the rich, and spending targets the poor, the multiplier can be especially high. But France’s so-called socialist government is lowering corporate taxes and cutting expenditures – a recipe almost guaranteed to weaken the economy, but one that wins accolades from Germany.

The hope is that lower corporate taxes will stimulate investment. This is sheer nonsense. What is holding back investment (both in the United States and Europe) is lack of demand, not high taxes. Indeed, given that most investment is financed by debt, and that interest payments are tax-deductible, the level of corporate taxation has little effect on investment. Likewise, Italy is being encouraged to accelerate privatisation. But prime minister Matteo Renzi has the good sense to recognise that selling national assets at fire-sale prices makes little sense. Long-run considerations, not short-run financial exigencies, should determine which activities occur in the private sector. The decision should be based on where activities are carried out most efficiently, serving the interests of most citizens the best. Privatisation of pensions, for example, has proved costly in those countries that have tried the experiment. America’s mostly private health-care system is the least efficient in the world. These are hard questions, but it is easy to show that selling state-owned assets at low prices is not a good way to improve long-run financial strength. All of the suffering in Europe – inflicted in the service of a man-made artifice, the euro – is even more tragic for being unnecessary. Though the evidence that austerity is not working continues to mount, Germany and the other hawks have doubled down on it, betting Europe’s future on a long-discredited theory. Why provide economists with more facts to prove the point?

• Joseph E. Stiglitz, a Nobel laureate in economics, is University Professor at Columbia University. His most recent book, co-authored with Bruce Greenwald, is Creating a Learning Society: A New Approach to Growth, Development, and Social Progress.