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An Alternative Vision for the Eurozone Crisis
The eurozone crisis has been reduced, according to the mainstream diagnosis, to a fiscal crisis caused by excessive public spending and a competitiveness gap between North and South. The mainstream solution is to close this gap by means of “expansionary fiscal austerity” and wage reductions. This has been admitted even by the International Monetary Fund to be a dead end.
The eurozone crisis has been reduced, according to the mainstream diagnosis, to a fiscal crisis caused by excessive public spending and a competitiveness gap between North and South. The mainstream solution is to close this gap by means of “expansionary fiscal austerity” and wage reductions. This has been admitted even by the International Monetary Fund to be a dead end.
In our opinion the root of the euro crisis lies both in the inadequate institutional set-up of the eurozone, which lacks a genuine lender of last resort and sufficiently coordinated fiscal and wage policies, and in an over-liquid and under-regulated international financial market that was more than happy to finance any imbalance – no matter how unsustainable it was.
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