Myths, Mix-ups and Mishandlings

What Caused the Eurozone Crisis?

Conference paper (2015)
Department
Values Technology and Innovation (TPM) (TU Delft)
Copyright: © 2015 The Author(s)
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Published Date

11-04-2015

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Source:

Annual Conference Institute for New Economic Thinking “Liberté, Égalité, Fragilité”, Paris, France, 11 April 2015

Faculty

Technology, Policy and Management

Department

Values Technology and Innovation

Abstract

The Eurozone crisis has been wrongly interpreted as either a crisis of fiscal profligacy or of deteriorating unit-labour cost competitiveness (caused by rigid labour markets), or a combination of both. Based on these diagnoses, crisiscountries have been treated with the bitter medicines of fiscal austerity, drastic wage reductions, and far-reaching labour market deregulation—all in the expectation that these would restore cost competitiveness and revive growth (through exports), while at the same time allowing for fiscal consolidation and private-sector debt deleveraging. The medicines did not work and almost killed the patients. The problem lies with the diagnoses: the real cause of the Eurozone crisis resides in unsustainable private sector debt leverage, which was aided and abetted by the liberalization of (integrating) European financial markets and a "global banking glut".

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