Year: 2016
Type: article
Abstract: The Eurozone crisis has been wrongly interpreted as either a crisis of fiscal profligacy or of deteriorating unit-labor cost competitiveness (caused by rigid labor markets), or a combination of both. Based on these diagnoses, crisis countries have been treated with the bitter medicines of fiscal austerity, wage reductions, and labor market deregulation—all in the expectation that these would restore cost competitiveness and revive growth (through exports), while at the same time allowing for fiscal consolidation and private debt deleveraging. The medicines did not work and almost killed the patients. The problem lies with the diagnoses: the real cause of the crisis resides in unsustainable private sector debt leverage, which was aided and abetted by the liberalization of European financial markets and a “global banking glut.”
Authors: Servaas Storm, C.W.M. Naastepad
Institution: Delft University of Technology
Language: English
Subfield: Finance
Domain: Social Sciences
Open Access status: hybrid
OpenAlex ID: W2344969189