Former Federal Reserve Chairman Bernanke has argued that the poor productivity has held back growth in the US. This seems true in Europe as well, but it has an additional problem: nonperforming loans. As a fraction of all EU loans, the nonperforming share has doubled since 2009 to one trillion euros or 9% of the region's 2014 GDP, according to the World Economic Forum. 

It cannot be entirely blamed on the weak recovery. Other countries have experienced weak recoveries, but have done more to address the NPL problem. Simply put: Many European banks been reluctant to write-off their nonperforming loans, especially when compared with US and Japanese banks. The World Economic Forum, citing survey results, attribute it this to weaknesses in the “supervisory and legal frameworks as well as the lack of well-developed distressed debt markets.” This is to say, the lack of sufficient banking and regulatory union and the under-developed capital markets. 

This Great Graphic from the World Economic Forum shows the evolution of the nonperforming loan problem and the lack of process in southern and central Europe. Only a few countries succeeded in lowering the NPLs ratio since the post-crisis peak.  

The World Economic Forum proposes a wide range of reforms. First, it advocates strengthened the supervisory regime to facilitate faster recognition of loan impairment, and higher loan loss reserves. Second, it advocates more efficient bankruptcy rules. It reports that the average length of foreclosure proceedings in Italy is nearly five year, compared with less than one Germany and Spain (though this does not appear to be significantly helping Spain). Third, the World Economic Forum advocates the development of a distressed asset market.

These all seem like good ideas. That they are obvious begs the question of why they have not been implemented already. Whatever the answers one arrives at, there is no reason to expect the situation to significantly improve over the next several quarters.