The Economic Reasons the Euro Crisis

Abstract

We argue that the current crisis in the Eurozone countries has its roots in the neoliberal policies implemented since the 1980s. Deregulation of financial markets, concentration of income and the progressive dismantlement of the welfare state all contributed to stagnation or decline in the real wage for the median household, stimulating an increasing demand in credit to sustain the standard of living. The size of public debts in some peripheral countries was not the origin of the current crisis, but the consequences of the 2007-2008 recession, coupled with a dysfunctional set of rules governing the ECB which prevented monetary policy to back governments in trouble. Austerity programs have further exacerbated the problems. The solution to the current crisis can only come from coordinated fiscal expansion, stimulated from countries running a current account surplus, but since this seems not politically feasible, the crisis will imply a breakdown of the current Eurozone agreements.