For nearly two months, widespread social unrest has swept the streets of several European countries as the rising cost of living becomes an increasingly burdensome challenge.
Protests have erupted across multiple European nations — including Albania, Italy, France, Belgium, Germany, Portugal and Spain — driven by a range of concerns, with soaring housing costs representing a primary grievance, especially among younger citizens; these costs have risen sharply since 2010.
While the principle set out in the 1948 Universal Declaration of Human Rights underpins economic security, the European Commission only introduced a legislative proposal in September to address the issue.
Paul Krugman, speaking to Euronews, stresses that the challenge extends beyond Europe and endorses temporary rent caps as an immediate tool to curb speculation.
Krugman argues that the solution is straightforward: increase housing supply and lift construction barriers. In regions where development has been deregulated, prices have declined markedly.
Nevertheless, Krugman notes that the present housing market is unsustainable. A recent demonstration in Italy quoted a 21‑year‑old university student who said a single room in Rome now costs €1,200.
The European Students’ Union, in its assessment of the Commission’s housing plan, warned that speculative practices are excluding thousands of young people and students from higher education.
The European University Association reports that students living independently allocate nearly 40% of their monthly income to housing expenses.
Both the Commission and the European Parliament recognize that the financialisation of housing — where investment funds treat properties as profit‑driven assets — has driven price increases.
Given that new housing construction in many European countries can take three to five years, Krugman advocates a pragmatic, second‑generation rent‑stabilisation model.
The 2008 Nobel laureate observes that his hometown, New York, is implementing rent stabilisation while providing incentives for additional construction. He emphasizes that the mayor — a left‑leaning figure in European terminology — is not ideologically purist, contending that development and regulation can coexist.
New York’s programme ties annual rent hikes to an index that caps the increase, and grants developers up to 40 years of substantial tax exemptions in exchange for dedicating a significant share of new units to the regulated regime.
Berlin’s model, in effect until 2029, caps rent growth to 10% above the local average, exempting units first occupied after October 2014.
He describes the scheme as imperfect but short‑lived if construction proceeds, noting that its beneficial effects appear quickly, lasting only a few years.
France’s Economy Is ‘Too Big to Be Saved’
With public debt standing at 119% of GDP, France’s fiscal situation is causing market anxiety. More than a decade after the sovereign‑debt turmoil, the spectre of renewed crises is once again looming over Europe.
Krugman stresses that if France pursued a credible path toward fiscal sustainability, short‑term austerity would be unnecessary; he notes the issue is relatively simple because the retirement age is absurdly low.
He warns that France could face a crisis similar to Portugal’s between 2010 and 2012. In a scenario of Parisian default, systemic imbalances could be unleashed.
He explains that such a crisis would be catastrophic for Europe and could undermine the entire euro system. Unlike Portugal, a peripheral economy, France is the second‑largest European economy, and Krugman argues it has shifted from being “too big to fail” to “too big to be saved.”
He cautions that bailing out 20% of euro‑area GDP is impossible given limited resources.
Europe Faces Risk of Deindustrialisation
Beyond internal fiscal weaknesses, Europeans confront external shocks from U.S. trade tariffs and China’s overproduction, which floods the EU market with subsidised goods.
Krugman believes Europe risks deindustrialisation, yet he remains confident that the continent’s automobile sector can regain competitiveness.
He warns that by the time the car industry recovers from past mistakes, the entire industrial ecosystem may have vanished.
Consequently, he argues that buffers are needed. Although a champion of open markets, Krugman recommends “playing defence” in today’s geopolitical context and supports temporary protectionism.
