The Global Crisis and Alternative Scenarios to Save the Euro: A Spanish Perspective

That the euro was in trouble became evident after the financial markets' turmoil the summer of 2007. The global financial crisis called into question some of the dogma propounded by the champions of liberal capitalism, such as the efficiency of financial markets. Whereas in the US several banks went bankrupt, in the EU the banking sector was recapitalised, and fiscal measures were taken to support companies and families, and to stimulate the economy; moreover, an institutional framework was set up to improve financial regulation and supervision. The banking and financial crisis was followed, as usual, by a debt crisis. In 2010–11, successive European Summits accelerated the creation of financial facilities and rescue mechanisms both to finance countries facing difficulties and to avoid the contagion effect. Political attention focused on those funds, hiding the political nature of the euro crisis, and masking the exchange rate and balance of payments disequilibria besetting the Eurozone. Correcting these imbalances will require more and bigger capital transfers from the EU budget to the peripheral countries. The peripheral countries, in turn, will have to continue their internal devaluation strategies. Simultaneously, the core countries, namely Germany, must initiate a period of internal revaluation.