The paper examines the productivity slowdown in Southern European countries, focusing on two competing explanations: the neoclassical model and the post-Keynesian model. The neoclassical model attributes the slowdown to factor misallocation, particularly capital misallocation, driven by low real interest rates following the adoption of the euro. The post-Keynesian model, based on Kaldor’s second law of economic growth, emphasizes the role of foreign trade and exchange rate changes. Using panel data from the EU KLEMS database, the authors investigate the robustness of these explanations. They find that the neoclassical hypothesis is fragile, with significant results depending on the inclusion of Italy in the sample. In contrast, the post-Keynesian hypothesis, which links productivity slowdown to nominal exchange rate appreciation, is more robust and consistent across different specifications. The results suggest that the productivity slowdown in Southern Europe is better explained by the post-Keynesian model, where the adoption of the euro led to a persistent shock in the nominal exchange rate, affecting competitiveness and productivity.The paper examines the productivity slowdown in Southern European countries, focusing on two competing explanations: the neoclassical model and the post-Keynesian model. The neoclassical model attributes the slowdown to factor misallocation, particularly capital misallocation, driven by low real interest rates following the adoption of the euro. The post-Keynesian model, based on Kaldor’s second law of economic growth, emphasizes the role of foreign trade and exchange rate changes. Using panel data from the EU KLEMS database, the authors investigate the robustness of these explanations. They find that the neoclassical hypothesis is fragile, with significant results depending on the inclusion of Italy in the sample. In contrast, the post-Keynesian hypothesis, which links productivity slowdown to nominal exchange rate appreciation, is more robust and consistent across different specifications. The results suggest that the productivity slowdown in Southern Europe is better explained by the post-Keynesian model, where the adoption of the euro led to a persistent shock in the nominal exchange rate, affecting competitiveness and productivity.