Crisis in the Eurozone
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First, there was the credit crunch, and governments around the world stepped in to bail out the banks. The sequel to that debacle is the sovereign debt crisis, which has hit the eurozone hard. The hour has come to pay the piper, and ordinary citizens across Europe are growing to realize that socialism for the wealthy means punching a few new holes in their already-tightened belts.
Building on his work as a leading member of the renowned Research on Money and Finance group, Costas Lapavitsas argues that European austerity is counterproductive. Cutbacks in public spending will mean a longer, deeper recession, worsen the burden of debt, further imperil banks, and may soon spell the end of monetary union itself.
Crisis in the Eurozone charts a cautious path between political economy and radical economics to envisage a restructuring reliant on the forces of organized labour and civil society. The clear-headed rationalism at the heart of this book conveys a controversial message, unwelcome in many quarters but soon to be echoed across the continent: impoverished states have to quit the euro and cut their losses or worse hardship will ensue.
has been labour market policy in Germany. Put in a nutshell, Germany has been more successful than peripheral countries at squeezing workers’ pay and conditions. The German economy might have performed poorly, but Germany has led the way in imposing flexibility and restraining real wages. Characteristic of the trend have been the labour market reforms of 2003 introduced by the Social Democratic Party and known as Agenda 2010. New labour contracts have reduced social contributions and unemployment
Total outstanding debt, European markets (euro, bn) 6000 5000 4000 General Gov 3000 2000 Monetary Financial Institutions 1000 2009–07 2009–11 2008–07 2009–01 2008–01 2006–07 2007–07 2007–01 2006–01 2004–07 2005–07 2005–01 2003–07 2004–01 2002–07 2003–01 2001–07 2002–01 2000–07 2001–01 2000–01 1998–07 1999–07 1999–01 1997–07 1998–01 1997–01 1995–07 1996–07 1996–01 1994–07 1995–01 1993–07 1994–01 1992–07 1993–01 1991–07 1992–01 1990–07 1991–01 0 1990–01
core have become heavily exposed to the periphery and, second, because banks have faced sustained funding problems. The debt crisis has, consequently, threatened to become a renewed global banking crisis. This is the underlying reason why eurozone authorities put together an extraordinary intervention package in May 2010, aimed at stabilising financial markets. However, banks have remained weak and their problems have not gone away. The counterpart to rescuing banks by eurozone governments has
the whole EU project, not only in its economic and political dimensions but also as the fundamental theme of Europeanist ideology, was increasingly dependant on the realisation of the EMU. It was indeed the first time in history that a currency common to more than 300 million people living in seventeen different countries was created from scratch, without a unified state behind it. In highlighting the rationale of this enterprise – its sources of strength but also its intrinsic limitations and
renegotiating its public debt. A government that reflected popular will and acted decisively might be able to secure deep ‘haircuts’ in a fairly short order of time. 55 The composition of Greek public debt has changed in 2010–11 as a result of the rescue packages but the points made in the text remain valid. 56 See Buchheit L. and Gulati, G. Mitu, 2010, ‘How to restructure Greek debt’, http:// papers.ssrn.com/sol3/papers.cfm?abstract_id=1603304there 132 Crisis in the Eurozone But debtor-led