Crisis in the Eurozone by Costas Lapavitsas

By Costas Lapavitsas

A arguable name to damage up the Eurozone and forestall the debt crisis.

First, there has been the credits crunch, and governments around the globe stepped in to bail out the banks. The sequel to that debacle is the sovereign debt hindrance, which has hit the eurozone not easy. The hour has come to pay the piper, and usual electorate throughout Europe are starting to be to achieve that socialism for the rich skill punching a couple of new holes of their already-tightened belts.

Building on his paintings as a number one member of the well known learn on cash and Finance staff, Costas Lapavitsas argues that ecu austerity is counterproductive. Cutbacks in public spending will suggest an extended, deeper recession, aggravate the load of debt, extra imperil banks, and will quickly spell the top of financial union itself.

predicament within the Eurozone charts a wary direction among political financial system and radical economics to envisage a restructuring reliant at the forces of equipped labour and civil society. The clear-headed rationalism on the middle of this e-book conveys a arguable message, unwelcome in lots of quarters yet quickly to be echoed around the continent: impoverished states need to surrender the euro and lower their losses or worse hassle will ensue.

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European banks began to face liquidity problems after August 2007, and German banks in particular found that they were heavily exposed to problematic, subprimerelated securities. During the first phase of the crisis, core eurozone banks continued to lend heavily to peripheral borrowers in the mistaken belief that peripheral countries were a safe outlet. Net exposure rose substantially in 2008. But reality gradually changed for banks as liquidity became increasingly scarce in 2008, particularly after the ‘rescue’ of Bear Stearns in early 2008 and the collapse of Lehman Brothers six months later.

To be sure the ECB has been hamstrung by its statutes which prevent it from directly acquiring public debt. But this is yet more evidence of the ill-conceived and biased nature of European Monetary Union. A well-functioning central bank would not have simply sat and watched while speculators played destabilising games in financial markets. At the very least, it would have deployed some of its ingenuity to constrain speculation, and the ECB has demonstrated considerably ingenuity in generously supplying private banks with liquidity in 2007–9.

Consequently, and inevitably, national debt also began to rise relative to GDP after 2007 (fig. 22). 11 But Greek debt, which has attracted enormous attention since the start of the crisis, was not the highest in the group, and nor has it been rising in the 2000s. On the contrary, Greek national debt declined gently as a proportion of GDP in the second half of the 2000s. Only in Germany and Portugal did national debt rise throughout this period, 11 The trajectory and components of private and public debt in eurozone countries are examined in detail in Part 2 of this book.

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