Is the Eurozone Crisis Really Over?

C. J. Polychroniou | May 23, 2014

Economic pundits who predicted the collapse of the euro at the start of the eurozone crisis have been proven wrong. But those who say the crisis is over are equally wrong.

Four years after the start of the euro crisis, the bailed-out countries of the eurozone (Greece, Ireland, Portugal, and Spain) are still facing serious problems, as the austerity policies imposed on them by the European Union (EU) authorities and the International Monetary Fund (IMF) not only failed to stabilize their economies, but actually made matters worse; in fact, much worse: the debt load increased substantially, national output was seriously undermined, unemployment reached potentially explosive levels, a credit crunch ensued, and emigration levels rose to historic heights. Because of these highly adverse effects, the citizens in the bailed-out countries have grown indignant and mistrustful toward parliamentary democracy itself, euroskepticism has taken firm roots, and a cleavage has reemerged between north and south.

Take unemployment, for example. The current unemployment rates in the four bailed-out eurozone countries are: 27 percent for Greece; 25 percent for Spain; 15 percent for Portugal; and 12 percent for Ireland, the nation with the highest emigration rate in all of Europe, and whose government was actually asking the unemployed recently to leave and take jobs in other European countries.

A similarly dramatic picture emerges when one looks at current government debt. In Greece, it ballooned from slightly less than 130 percent in 2009 to 175 percent at the end of 2013 and it still growing. Ireland’s public debt, which stood at 25 percent of GDP in 2008, grew to nearly 65 percent by 2010 and climbed to over 125 percent by the end of 2013. Portugal’s public debt, which was slightly less than 70 percent in 2008, jumped to over 100 percent by 2011 and then to over 130 percent by 2013. And Spain’s public debt has surged to nearly 95 percent of GDP, standing at close to 1 trillion euros—three times as much as it was at the start of the crisis in 2008—and is projected to go over 100 percent by the end of 2014.

In short, the rest of the bailed-out eurozone countries are looking more and more like Greece when it comes to public debt—the result of the “voodoo” economics that the witch doctors of the EU and the IMF cooked up in order to formulate the so-called “rescue” plans.

The prospects for real growth in the periphery of the eurozone are grim as the EU’s current economic mindset, a set of economic dogmas that include (1) relegating unemployment to the status of a natural and inevitable (and perhaps even desirable) outcome of fiscal adjustment, (2) relying on austerity as a confidence builder, (3) treating structural reform as a panacea and (4) valuing exports as the primary engine of growth trump serve to impede recovery.

Each one of these ideas, as I spell out in detail in a public policy brief that was just released by the Levy Economics Institute, are highly flawed and, when combined, they can be deadly dangerous. They constitute tenets of an ideological “worldview” rather than empirically proven statements.

Little wonder, then, why the economies in the periphery of the eurozone are in such horrific shape, with no prospects for an end to the deep economic and social crisis that plagues millions of their citizens, until either the EU changes its policies or these nations exit the euro.

Changing course is a highly unlikely option, given the eurozone’s architecture and the interests being served, as it would mean a complete rejection of neoliberalism as policy paradigm and an ideological project. Since at least the signing of the Maastricht Treaty, neoliberalism has become firmly institutionalized inside the monetary union and expanded at every available opportunity, including the current crisis.

The driving principles for the neoliberal approach to economy and society revolve around the privatization of public goods and services, the deregulation of markets, and the restructuring of the state into an agency that facilitates and protects unfettered capital accumulation while it shifts an increasing amount of resources from the public realm to the private sector; especially in the direction of the dominant fraction of capital in today’s advanced capitalist societies, that is, “financial” capital. The bailouts of bankrupt banking and financial institutions in the United States over the course of the latest global financial crisis, as well as of peripheral countries in the euro area by the EU authorities, need to be understood within the context of the changes that have taken place in capitalist political economy since the early 1980s, which marks the reemergence of predatory capitalism and the establishment of neoliberalism as the new institutional and ideological framework for capital accumulation on a global scale.

Indeed, the EU/IMF rescue programs that Greece, Ireland, Portugal, and Spain entered into were designed, above all, to provide a “firewall” for the protection of the European banking system and thus the single currency itself, rather than solve the economic problems facing those nations. The rescue programs demanded great sacrifices on the part of average citizens in those countries due to the reckless practices of banks and the financial sector—while the banks themselves came out clean and the eurozone returned to being a playground for bond investors. In this context, the EU/IMF duo pressed hard for austerity and structural reforms for the bailed-out countries purely on the basis of an ideological conviction that such measures would enhance confidence, which in turn would create the proper conditions for a return to growth and higher employment.

There is hardly a trace of solid evidence that the austerity / structural reforms / export-led growth approach insisted upon by the EU and the IMF has paid any solid economic and social dividends. In this context, the crisis in the eurozone periphery not only continues, but it could also intensify in the near future, especially once the citizenry in those countries realizes that the game is rigged in favor of finance capital and big business. For this is exactly what the current EU policies are designed to do, to the detriment of a decent standard of living for the average citizen.


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