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This paper takes Keynesian macroeconomics and growth theory as its starting point and uses it to analyse the rise of unemployment in the large European economies. In a nutshell the explanation proposed in a series of papers2 is the following. Employment growth is determined by demand growth. The path of growth is set by investment decisions. Changes in labor market institutions are unable to explain the rise in unemployment. Econometric evidence on the relative explanatory power of labor market institutions and capital accumulation in explaining labor market variables are presented in Stockhammer (2004a). I conclude that capital accumulation determines the development on the labor market. Consequently the question of why capital accumulation has slowed down arises. It will be argued that changes in the relation between the financial sector and the real sector of the economy, a phenomenon to be labeled ‘financialization’ (Stockhammer 2004b) is at the root of this slowdown.