The Financial Crisis in Europe

Abstract

Financial collapse is haunting Europe. The most immediate fear is that a small European state might default on its government debt, but several large European banks might go bust because of a deflated real-estate bubble in Southern Europe. Brutal austerity policies have been imposed on countries that are already in recession, but in most cases it is difficult to interpret the battle cry of ‘sound fiscal policy’ as anything but a cover for a restructuring of the role of the state. There is a blatant class bias in the new policy regime in that it fails to address the causes of the crisis but, much more overtly than previous EU policies, puts downward pressure on wages and welfare states. The European crisis has to be seen in the context of the global financial crisis, but the morphing of the crisis from a financial crisis to a sovereign debt crisis in peripheral Europe (but not in the USA) requires explanation. The crisis is linked to the particular design of economic policy regime of the euro area and the divergent growth dynamics to which this has given rise.