The Eurozone in Crisis — A Kaleckian Macroeconomic Regime and Policy Perspective

Abstract

The current Covid-19 Crisis 2020 has hit the Eurozone in a highly fragile situation, with a weak and asymmetric recovery from the Great Financial Crisis, the Great Recession and the following Eurozone Crisis. These crises have also revealed the weaknesses of the macroeconomic policy institutions and strategies of the Eurozone based on New Consensus Macroeconomics (NCM). Applying a Kaleckian/post-Keynesian analysis of the demand and growth regimes to the EA-12 countries, we show that the internal imbalances within the EA-12 before the Eurozone crisis, with the polarization of current account deficit debt-led private demand boom countries, on the one hand, and of current account surplus export-led mercantilist countries, on the other hand, have been externalized since then. Most of the countries and the EA-12 as a whole have now turned export-led mercantilist. For an economic policy alternative favouring a domestic demand-led regime, we turn towards Kalecki's macroeconomic policy proposals for achieving and maintaining full employment in a capitalist economy by government deficit expenditures, in combination with redistribution policies in favour of labour and low-income households, assisted by central banks targeting low interest rates. This approach is then applied to the Eurozone, in order to derive a policy mix which should contribute to a more rapid recovery from the Covid-19 Crisis and to a medium-to long-run non-inflationary full employment domestic demand-led regime, on the one hand, and to sustainable catching-up of the periphery of the Eurozone with respect to the more mature centre, on the other hand.

Demand and growth regimes in finance-dominated capitalism and the role of the macroeconomic policy regime: a post-Keynesian comparative study on France, Germany, Italy and Spain before and after the Great Financial Crisis and the Great Recession

“…1 (see also Hein 2012, chapters 6 and8, 2019). These imbalances were driven by high growth contributions of private domestic demand, fuelled in particular by the increasing indebtedness of the private household sector in debtled private demand boom countries that also provided expanding markets for the 8 This section partly draws on the analysis of the demand and growth regimes in the Eurozone (EA-12) countries for the period leading to the 2007-2009 crises (2001-2009) and after (2010-2019) that we have provided in Hein and Martschin (2020). Here, we will focus in more detail on the four countries of interest in the current paper, France, Germany, Italy and Spain, and, for comparison, the EA-12 as a whole, and then link the macroeconomic demand and growth regime analysis to the macroeconomic policy analysis in Sect.…”

“…Our four country cases have shown that the macroeconomic policy regime has had an important impact on the emerging type of demand and growth regime and the changes in regimes after the 2007-2009 crises. This impact has not only been exerted by fiscal policies, as pointed out by Hein (2019), Hein and Martschin (2020), and Kohler and Stockhammer (2021), for example, but by the whole macroeconomic policy mix or regime. It was the combination of monetary, wage and fiscal policies, together with the open economy conditions, which has affected the type and the changes of the demand and growth regimes.…”

“…weakly export-led) after the Great Financial Crisis and the Great Recession (Hein and Martschin 2020). Those debt-led private demand boom countries before the crisis, which were able to make use of expansionary deficit-financed fiscal policies, in particular the UK and the USA, however, compensated private deleveraging by rising public deficits, thus stabilising aggregate demand in their countries and turning to a domestic demand-led regime stabilised by public deficits (Hein 2019).…”

“…See, for example,Hein and Martschin (2020) for an outline on how a sustainable full-employment post-Keynesian macroeconomic regime for the Eurozone could look like.12 See Hein (2017) for a recent overview on developments in post-Keynesian macroeconomics andStockhammer (2021) for post-Keynesian alternative macroeconomic foundations of CPE.…”

Suomen poliittinen talous vuonna 2020

“…2010-luvulle tultaessa Suomi edusti Euroopan sisäisessä variaatiossa pääasiallisesti "vientivetoista" eli ulkomaiseen kysyntään ja/tai ulkomailta voittojen kotiuttamiseen perustuvaa kasvumallia. Siinä missä Suomen talous oli vielä jokseenkin vientivetoinen 2000-luvun ensimmäisellä vuosikymmenellä, kääntyi se kotimaisesta kysynnästä riippuvaiseksi 2010-luvun aikana (Hein ja Martschin 2020). Vientiteollisuuden lasku, erityisesti Nokian romahdus ja Metsäteollisuuden tuotteiden vientikysynnän heikentyminen, sekä palveluviennin arvonlisäyksen realisoituminen arvoketjuissa ulkomailla ovat merkittävä osa tätä muutosta.…”