Structural asymmetries at the roots of the eurozone crisis: What's new for industrial policy in the EU?

Several economists describe the eurozone crisis in terms of three main facts. First, before the 2007-2008 financial crash, the process of monetary and financial integration allowed most peripheral Eurozone countries to benefit from considerable capital inflows (Perez-Caldentey and Vernengo, 2012). Accordingly, their economies expanded rapidly, often faster than central economies, giving rise to a sort of centre periphery convergence (see figure A.1 in the appendix to the paper). Housing booms took place in Ireland, Spain and (to a lesser extent) Greece in the first half of the 2000s, and increasing external imbalances emerged much in the same way as they did historically in several developing countries after financial liberalisation (Stockhammer, 2012).1 Second, the worldwide financial dislocation induced by the subprime crisis threw all of the eurozone into a deep recession, forcing national governments to come in to bail out close-to-bankruptcy private financial institutions and provide relief against recession. A prevalently private sector problem became a public concern (De Grauwe, 2010). The loss of monetary sovereignty by eurozone countries constitutes the third piece of the story, since it has increased the fear of sovereign debt default and the floor to speculative attacks, as well as capital flights away from externally indebted peripheral countries.