Neoliberalism, trade imbalances, and economic policy in the Eurozone crisis

Abstract

This paper analyzes the causes of the Eurozone crisis. In doing so,it carefully surveysauthors from different economic schools of thought. The paper discusses competing explanations for European current account imbalances. Remarkably, opposing views on the relative importance of cost developments and demand developments in explaining current account imbalances can be found in both heterodox and orthodox economics. Regarding the assessment of fiscal and monetary policy there is a clearer polarisation, with heterodox analysis regarding austerity as unhelpful and most of orthodox economics endorsing it. We advocate a post-Keynesian view,which holds that current account imbalances are not a fundamental cause of the sovereign debt crisis. Rather, the economic policy architecture of the Eurozone, which aims at restricting the role of fiscal and monetary policy, is the key to understanding the crisis in Europe.

The European core–periphery divide: towards a new narrative

“…Following this reasoning, the dominant narrative is the one that most influences policymakers and socio-political decisions. As a consequence, it is not surprising that the Economic and Monetary Union (EMU) integration process was characterized by a neoliberal design and influenced by ordoliberal ideas (Dullien/Guérot 2012;Ito 2011;Stockhammer et al 2015). Kapeller et al (2017) found empirical evidence about the connection between mainstream economic models, policy-making, and political narrative within the EMU.…”

“…As a matter of fact, however, there is no convergence towards a consensus narrative (Stockhammer et al 2015), and national public opinions struggle to share a common European interpretation of the crisis. Müller et al (2018) analyse the European fragmented public sphere by examining key crisis-related topics in articles from four opinion-forming newspapers in Germany, France, Italy and Spain (respectively, Süddeutsche Zeitung, Le Monde, La Stampa and El País).…”

“…Others underline the importance of structural problems and the EMU's institutional weaknesses (Della Posta 2017), relative demand developments, credit booms, capital flows and effects of financialization, and financial deregulation and inequalities (Stockhammer 2015) in explaining the roots of the crisis. Most post-Keynesians scholars are convinced that trade balances are not the real key element for understanding eurozone crisis, which is instead the consequence of the neoliberal fiscal and monetary policies of the EMU (see Stockhammer et al 2015).…”