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The endless Eurozone crisis, where do we stand? A Classical-Kaleckian overview

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  • Sergio Cesaratto

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Abstract

It is not easy to untangle the logic that in the past led to creation of the European Monetary Union (EMU) and that is currently guiding the prevailing Eurozone (EZ) policies. Although lacking the right institutions, which can be seen as the ultimate root of its crisis, the ten years of the EMU could be celebrated in 2008 with some fanfare. The EMU even seemed a success, judged from the point of view of imbalanced growth of some peripheral countries that masked its deflationary stance. This imbalanced growth was the proximate cause of the EZ financial crisis. In the paper we shall review the main causes of the EZ financial crisis, interpreted as a balance of payments crisis; the role of the European payment system TARGET 2 in buffering its violent blast; the Classical-Kaleckian rationale of the German malevolent mercantilism; the inadequate EZ policy measures to respond to the crisis; possible alternative solutions. Unfortunately, rather than pushing towards the creation of a different set of European institutions, the prevailing crisis resolution philosophy resembles a late vindication of the original deflationary Euro-bias.

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Paper provided by Department of Economics, University of Siena in its series Department of Economics University of Siena with number 671.

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Date of creation: Feb 2013
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Handle: RePEc:usi:wpaper:671

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Keywords: European Monetary Union; financial crisis; Germany; neo-mercantilism; balance of payment; capital flows; sudden stops; TARGET 2; OMT;

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  1. Hans-Werner Sinn & Timo Wollmershäuser, 2011. "Target Loans, Current Account Balances and Capital Flows: The ECB’s Rescue Facility," CESifo Working Paper Series 3500, CESifo Group Munich.
  2. Martina Cecioni & Giuseppe Ferrero, 2012. "Determinants of TARGET2 imbalances," Questioni di Economia e Finanza (Occasional Papers) 136, Bank of Italy, Economic Research and International Relations Area.
  3. Gennaro Zezza, 2012. "The impact of fiscal austerity in the Eurozone," Review of Keynesian Economics, Edward Elgar, vol. 1(0), pages 37-54.
  4. Antonella Stirati, 2010. "Changes in Functional Income Distribution in Italy and Europe," Departmental Working Papers of Economics - University 'Roma Tre' 0119, Department of Economics - University Roma Tre.
  5. Aldo Barba & Massimo Pivetti, 2009. "Rising household debt: Its causes and macroeconomic implications--a long-period analysis," Cambridge Journal of Economics, Oxford University Press, vol. 33(1), pages 113-137, January.
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Cited by:
  1. Sergio Cesaratto, 2013. "The implications of TARGET2 in the European balance of payment crisis and beyond," Department of Economics University of Siena 681, Department of Economics, University of Siena.

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