A credit-money and structural perspective on the European crisis: why exiting the euro is the answer to the wrong question

Abstract

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.

Explaining the Euro crisis: current account imbalances, credit booms and economic policy in different economic paradigms

“…also Lapavitsas, 2015a, b). Bellofiore et al (2015), however, agree with the point, most prominently associated with PKE, that the design flaws of the EMU, with the separation of fiscal and monetary spaces and the lack of an effective de facto lender of last resort for governments must play an important role in explanations of the Eurozone crisis. A clearer division emerges with respect to the desirability of QE, with many analysts opposing it on the grounds of moral hazard and others supporting it.…”

“…It is difficult to identify a uniform Marxist view on fiscal policy in general and in the context of the EMU in particular. Many Marxist-inspired analyses broadly agree with the PK case for fiscal policy effectiveness and stress the adverse effects of austerity (Bellofiore, 2013;Bellofiore et al, 2015). 8 However, some Marxist authors doubt the general effectiveness of fiscal policy.…”

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“…Another part of this literature has taken a broader view in recognizing that the crisis has been linked to structural changes in the private sector of the European economy, in particular in household and firm finances. A particular deflationary role has been attributed to the growth of financial liabilities that has broadly been referred to as "financialisation" (see, for example, Phillips, 2014, or Bellofiore, Garibaldo andMortagua, 2015).…”

Perspectives on Financialisation and Crises in Europe

“…Another part of this literature has taken a broader view in recognizing that the crisis has been linked to structural changes in the private sector of the European economy, in particular in household and firm finances. A particular deflationary role has been attributed to the growth of financial liabilities that has broadly been referred to as "financialisation" (see, for example, Phillips, 2014, or Bellofiore, Garibaldo andMortagua, 2015).…”