The contributors to this book share the belief that the sovereign debt crisis affecting the Eurozone periphery has been the consequence of the structural asymmetries characterising the process of European monetary integration and the Economic and Monetary Union (EMU) from its onset, exacerbated by the impact of the global financial crisis.
Moreover, there is some agreement that European institutions were taken by surprise by the financial crisis and as yet do not seem to have the capacity, nor the political will, to truly move forward in the necessary process of political and fiscal integration.1
The European Commission, in particular, was completely unprepared to tackle the global financial crisis and the subsequent recession. Indeed, European responses to the financial crisis have been fairly erratic and ad-hoc, and European Union (EU) authorities did not seem capable of providing a solid safety net for struggling countries in the periphery. Furthermore, European Institutions may be considered at least partially responsible for the effects of the Global financial crisis on the Eurozone. For example, in the period preceding the crisis, the European Central Bank (ECB) was not particularly active in curbing the expansion of the financial sector in general and, in particular, of powerful Western European banks, which as a result became heavily exposed. As some of the contributors in this book clearly point out, the Commission seemed to be much more interested in the flexibility of the labour markets (Talani in Chap. 6), while the financial sector deregulation continued unhindered.2 Equally, there was no EU coordination of macroeconomic policy responses to the ensuing economic crisis. When and if stimulus programs were implemented, this happened merely at the level of the nation state and usually brought accusations of āfinancial protectionismā in breach of the single market and in support of national economic players at the expense of their European competitors. Finally, the EU relied heavily on the International Monetary Fund (IMF) to provide much needed support for Europeās periphery.3
Where does all this leave the euro? When the Eurozone was established, there was much talk about the euro becoming an international reserve currency, challenging the international role played by the US dollar. Although the international role of the euro had increased somewhat in the 10 years following its introduction, the dream of further expansion did not materialise and for very good reasons judging from the latest developments in the EU. Indeed, the little improvement in the international position of the euro took place at the beginning of the EMU and until 2002ā2003, and it is mainly due to the substitution effect with the German currency. Anything happening thereafter was mainly the consequence of the appreciation of the European currency vis-Ć -vis the US dollar, although it might be more appropriate to talk about the depreciation of the dollar with respect to the euro. Obviously, all progress in this respect has been reversed with the outburst of the global financial crisis to the extent that, as further elaborated in the Chap. 2, the dollar even gained the status of a āsafe havenā for investors during those troubled times. Finally, the Eurozone crisis definitely ended any aspirations of the euro to further develop into an international currency given the instability not only of the economic policy making of the EU, but also of its political and ideological framework.4
There is speculation that the policy decisions taken by the EU in response to the Eurozone crisis are configuring a new institutional project in line with a neo-functionalist interpretation of the crisis as almost a stimulus for further integration of the European economic governance system. This is also reflected, to a certain extent, in some of the contributions to this book (Torres and Bongardt in Chap. 3). However, paradoxically, the USA, where the crisis first exploded and where its economic consequences where first felt, managed to come out of the global financial and economic crisis much stronger than Europe, in monetary terms, but also in economic and political ones, thus making any previous discussion about the capacity for the EU to take the lead in the global economy frankly obsolete and meaningless.5 To be sure, in the USA there were institutions, such as the US Federal Reserve and Treasury able to adopt the necessary crisis-management measures as well as to take up the role of lenders of last resort, whereas in the case of the Commission and of the ECB this was clearly not the case (Talani in Chap. 2).6
Finally, after the events in Greece, as very well detailed by Fouskas and Dimoulas in Chap. 6, there is really little evidence of European solidarity; on the contrary there is much evidence of the incapacity of the EU to intervene in a coordinated way to avoid disaster.
Indeed, reaction to the sovereign debt crises affecting the so called PIIGS group (Portugal, Ireland, Italy, Greece and Spain) mainly took the form of ad-hoc measures lacking institutional depth and, more importantly, democratic legitimacy, such as the European Financial Stability Facility (EFSF)7 later replaced by the European Stability Mechanism (ESM).8 Neither of the institutions come any closer to the establishment of a much needed fiscal union in the EU that would finally guarantee true solidarity among the member states. Even less useful to this aim are the many changes and addenda to the Stability and Growth Pact, taking the form of the Fiscal Compact and of the Six-Pack, which resulted in a newly reformed Stability and Growth Pact. On the contrary, far from providing a platform for a real fiscal unification, they fuelled discontent amongst the populations of peripheral countries bashed by the austerity mantra and, above all, practice. Indeed, there is little doubt in the minds of the contributors to this book that the burden of the costs of the crisis was inflicted on the weakest sectors of the EU society. This happened through the imposition of savage austerity plans justified by the EU institutionsā rhetoric on āinternal devaluationā as the only way out of the crisis when it would have been necessary to seriously tackle the democratic and solidarity deficit affecting the EU system. It is no surprise, then, that similar austerity plans resulted in popular resistance, political instability and eventually in the threat of disruption to the EU integration process as a whole.
Thus, in this book, the crisis of Europe and especially of its periphery is analysed within the context of the structural asymmetries of the EMU with the aim to identify the impact of the crisis on the future of the EMU and of the EU project as a whole.
To start with, in Chap. 2 Talani argues that the global financial crisis acted as an asymmetric shock for the Euro Area. This is due to the structural differences characterising the different Euro Area member states, structural differences that both the adoption of the euro and the onset of the global financial and economic crisis contributed to, deepening a structural problem of competitiveness embedded in the way in which the EMU was devised and implemented. This is contrary to the widespread belief that the Eurozone crisis was the necessary consequence of the unsustainability of the fiscal position of the peripheral members of the Eurozone. Talani points, instead, at the lack of sustainability of a structurally asymmetric EMU in the wake of an extremely serious economic shock, the global financial crisis. Unable to tackle the real problems of the Euro Area and intervene to increase political and fiscal integration, the EU institutionsā insistence on āinternal devaluationā and austerity only brought the PIIGS group to the verge of the abyss.
In Chap. 3, Annette Bongardt and Francisco Torres provide a different perspective on the crisis by focusing on the role of economic and structural reform in EMU. Starting out with the uneven governance of EMUās economic and monetary parts set out in the Maastricht blueprint, they examine how soft coordination under the heading of the Lisbon Strategy fared before the sovereign debt crisis and proceed with analyzing the changes that the eruption of the sovereign debt crisis in 2010 brought about, looking into the Europe 2020 Strategy, the Euro Plus Pact, and the implications of the emergence of market pressure and conditionality. The chapter focuses on structural reform needs from the point of view of a durable crisis exit. In this context the authors also discuss the special case of Greece. They conclude that EMU ā or at least the membership of individual countries - will not be sustainable without creating national adjustment capacity and willingness to implement economic reforms. Although EMU resilience could still be guaranteed through other mechanisms in the absence of sufficient national adjustment capacity (notably abanking union with an orderly state bankruptcy regime), this would mean a very different model of European integration.
In Chap. 4, Stefan Collignon introduces a completely new approach to the notion of competitiveness and the related lack of it plaguing the Eurozone periphery. Overturning the idea that a monetary union functions essentially like a fixed exchange rate system, just much stronger, he proposes to view a currency union like a domestic economy, with a single domestic debt which, therefore, can be serviced out of profits in the non-tradable sector and not only by export earnings. As a consequence, a currency union only needs balanced growth between the sectors and between regions (countries). From this standpoint, competitiveness is no longer a measure of comparative advantage in foreign trade, but simply a measure of profitability for investment. In his chapter, Collignon proposes a new index for measuring the competitiveness of wage levels which is based on the return on capital in the Euro Area.
Chapter 5, By Alex Turk and Gianni lo Schiavo, discusses the new regulatory tools for the European Banking Authority and argues that such tools, while increasing the efficiency of the financial market regulation, pose a risk to the constitutional and institutional foundations of the EU. The Unionās constitutional and institutional framework provides normatively important limitations to the conferral of powers to agencies resulting front the principles of conferral (legal basis constraint), institutional balance (delegation constraint) and democratic legitimacy (process constraints). It is argued that the drive for greater efficiency in the regulation of financial services undermines these important constraints. This view has obvious implications for the interpretation of the legal provisions providing for such tools.
In the second part of the book the contributors see the crisis from the point of view of the periphery.
Chapter 6, by Fouskas and Dimoulas, counters the mainstream view that the Eurozone crisis emanated partly from the incompetence of the peripheral EU states to collect taxes, partly from their own statesā profligacy with a huge and uneconomic public sector, and partly from the āfactā that these societies are not working as hard as their northern neighbours. This view has been defeated by original work carried out in the past few years not only by Marxian scholars and heterodox economists, but also by important financial commentators and journalists, such as Martin Wolf of the Financial Times. The Eurozone crisis, this winning approach argued, is a balance of payments crisis that is bound up with Germanyās anti-inflationary, low wage, export-led growth creating permanent surpluses for itself and permanent deficits for the periphery. This chapter goes a step further by offering a historical reading of the Greek social and political economy; it brings into context political and agential aspects of the crisis, that is, a class analysis of the Greek situation. The thesis advanced is that Greeceās dominant capitalist class has always been a comprador one, which, from the early 1990s onwards, began diversifying its main activities following the global trend of financialisation and the insertion of Greece into the Eurozone. It is argued that this class and its politico-ideological ramifications constitute the most parasitic and corrupt element of Greek society and politics that any left alternative has to confront head on.
In Chap. 7, Talani analyses what went wrong in the relationship between Italy and the EMU. Although Italy was amongst the most enthusiastic founding members of the European Economic Community in 1957, the Italian capacity to respect the imperatives of European integration could not, and still cannot, be taken for granted, as the recent sovereign debt crisis de...