Download Lapavitsas_presentation

Eurozone Crisis: True Causes
and Effective Therapies
Costas Lapavitsas
SOAS/RMF
June 2013
A political project?
Economic basis of the EMU
Unwillingness of Germany to act as anchor of
EMS
Monetary union as an equitable and
democratic institution
Complex nature of EMU
A formal alliance to create an international
reserve currency – the main competitor to the
US dollar.
A formal alliance to create a domestic
monetary standard – the national money of
17 sovereign states.
Inherent weakness of EMU
International and domestic roles of the euro
clash with each other.
The changes needed to make them
compatible are highly unlikely given the
social, political and institutional conditions in
Europe.
Clashing roles of the euro appear as:
Systematic divergence in
competitiveness/inflation
Systematic imbalances in current accounts
Sudden and violent shifts in capital flows
Hence the international functioning of the
euro has re-emerged within the EMU, but
masked
Unit labour costs/Inflation, coreperiphery
ULC in Germany, France, Southern
Europe
135
130
125
120
115
110
105
100
95
Inflation target of 1.9%
2012
2011
2010
2009
ULC Southern Europe
2008
2007
2006
ULC France
2005
2004
2003
ULC Germany
2002
2001
2000
1999
90
Current account deficits, core-periphery
Current account balances
Germany, France, Southern Europe
10%
Introduction of the Euro
8%
6%
4%
2%
0%
-2%
-4%
-6%
Germany
France
Southern Europe (Greece, Portugal, Spain and Italy)
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
-8%
German ‘other’ capital flows by region
EU policy toward the periphery
Fix ‘international’ malfunctioning through
austerity, privatisation, liberalisation.
Replace private flows from abroad with
official flows from the ECB and EFSF as well
as by ELA.
Catastrophic results:
Collapse in demand, huge social costs, debt
position has worsened.
Shortage of domestic private credit as banks
hoard liquidity with ECB.
Lack of growth prospects and rising social
tensions
ULC and GDP path, Greece
145
140
135
130
125
120
115
110
105
ULC
Real GDP
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
100
ULC and GDP path, Portugal
135
130
125
120
115
110
105
ULC
Real GDP
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
100
ULC and GDP path, Ireland
170
160
150
140
130
120
110
ULC
Real GDP
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
100
Most immediately dangerous:
Fragmentation of banking
Tightening of links between national banks
and nation states
Diverging interest rates on private debt
Liquidity from the ECB can ameliorate the
problem but not fix it
2013-Q1
2012-Q4
2012-Q3
2012-Q3
2012-Q2
2012-Q1
2012-Q1
2011-Q4
2011-Q3
2011-Q3
2011-Q2
2011-Q1
2011-Q1
2010-Q4
2010-Q3
2010-Q3
2010-Q2
2010-Q1
2010-Q1
2009-Q4
2009-Q3
2009-Q3
2009-Q2
2009-Q1
2009-Q1
2008-Q4
2008-Q3
2008-Q3
2008-Q2
2008-Q1
2008-Q1
2007-Q4
2007-Q3
2007-Q3
2007-Q2
2007-Q1
2007-Q1
Peripheral bank government bond
holdings as % of assets
9.0%
8.5%
8.0%
7.5%
7.0%
6.5%
6.0%
5.5%
5.0%
The underlying problem persists:
France and Italy ULC
140
135
130
125
120
115
110
105
100
95
Germany
Greece
Spain
France
Italy
Inflation target of 1.9%
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
90
An alternative within EMU?
Marshall plan for the periphery to raise
productivity
Rebalancing the German economy
Debt cancellation
Restructuring finance
Income and wealth redistribution
Little chance of this happening, hence a
break-up is likely
A realistic alternative?
Institute exit option for peripheral countries
Reconsider the extent of monetary union for
core countries
Manage exchange rates
Banking and capital controls
Shift away from neoliberal policy