Growing levels of inequality today, even in developed countries, are hurting democracy and creating pressing challenges for policymakers, it was concluded yesterday at the Athens Democracy Forum panel discussion between Nobel Prize-winning Economist and NYT columnist, Paul Krugman, former PASOK minister and European commissioner for employment and social affairs, Anna Diamantopoulou, and managing director at the European Bank for Reconstruction and Development (EBRD), Alan Rousso. The event was organized by The International New York Times.

Krugman argued that the root of the problem is "patrimonial capitalism", as we are becoming a society of extreme inequality, where much of it is inherited. Referring to European policy during the crisis, he blamed spending cuts and tax hikes for aggravating the equality gap and compromising democracy, arguing that "austerity has been used as a tool to smash the institutions that were a bulwark against inequality". 

Diamantopoulou maintained that the "financialization" of the global economy in the 1980s was the catalyst for generating inequality and that the main challenge for policymakers is how to reform institutions.

She also noted that the fiscal handling of the recent economic crisis has intensified the problem of inequality, as happened in Greece where the lower income groups in Greece saw their tax burden increase by 337.7% from 2008 to 2012, compared to a 9% rise for higher income groups, according to a Hans Boeckler Foundation report, issued last March.

Discussions about debt and against austerity are important, she said, but what are really needed are the economic policies that can boost growth.

Rousso acknowledged that the introduction of capitalism and transition to market economies in Eastern Europe failed in some cases to deliver the expected benefits, with uneven accumulation of wealth, especially in countries like Russia. He asserted that the only way forward is for European states to continue with structural reforms to provide the growth that can make these societies more equal.

Read more: Athens Democracy Forum: Enhancing Society through Better Governance & Art and Democracy: A New York Times-Costa Navarino forum