Capitalism is still in a systemic crisis that started in the Summer of 2007. Financial instability arose from the difficulties inherent in a particular segment of US financial markets, then spread to the rest of the world. The financial crisis mutated into a banking crisis and, in less than a year, it became a full blown crisis of the real economy. Now, the crisis of private debt has turned into a public debt crisis, and the global crisis has heavily affected Europe. The recession is likely to be a prolonged one even if one accepts that the feeble recovery, if there is a recovery at all, will not end in another depression. The trigger of a double dip may be European contradictions. Capitalism could therefore face again, in the medium term, a prolonged period of stagnation with mass unemployment. In this paper, we will first give a brief outlook of the global and European crisis. Then we will focus on Europe. We will inquire in particular into the contradictions of European neo-mercantilism, considering some 'microeconomic' but crucial dimensions of the nature of competition and industrial restructuring.

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Is an exit from the euro possible? Is it desirable? We think that to deal with these questions, which may well not be the right ones just now, what is needed is a preliminary but thorough critique of the views on the European crisis that are most widespread. The heterodox approaches more and more underline a balance-of-payments problem, caused by cumulative differences in relative prices which have led to distinct growth strategies: export-led in the core, and debt-led in the periphery, focused on consumption and real-estate investment. This interpretation overlooks some defining features of current monetary economies, in general, and some specifics of currency areas. In a monetary union it's not possible to have a ‘normal’ balance-of-payments crisis, and a distinction must be made between financing and saving. Moreover, current accounts, based on net flows, exclude underlying changes in gross flows and their contribution to the existing stocks of debt. We also have to deal with the structural divergences in the European economy. To make sense of Europe today and its crisis, we have to take into account the geographical and technological composition of intra-European trade.

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