The Power of Ordoliberalism in the Eurozone Crisis Management

Abstract

It is one of the great misnomers to call the present Eurozone debt crisis a sovereign debt crisis. The reality is that the European sovereign debt crisis started when the debt of the private banking sector was transformed into public sector debt via bail-outs. Blythe and Newmann refer to this discursive shift as the `greatest swindle of modern times perpetrated on the European Public by their governments on behalf of their banks' (2011: 2). If we compare public debt as a percentage of GDP with private debt in percentage of income in 2008 in those supposedly problem sovereign debt countries, we find that they in fact had a slightly better record than Germany. Ireland had a public debt as a percentage of GDP in 2008 of 44 per cent (private debt in percentage of income 197 per cent); Spain's public debt was 41 per cent of GDP (private debt 128 per cent); Portugal's public debt was 66 per cent (private debt 135 per cent); Germany's public debt was 66 per cent (private debt 89 per cent). The accumulation of private debt in Spain and Ireland had to do with the massive build-up of private household debt as a result of the housing bubble. House prices rose in Spain by 120 per cent in the period 1997--2008, which was the highest in the Eurozone. The only exception to the accumulation of huge private debt levels was Greece. Greece's public debt was a high of 97 per cent in 2008 (increasing to 115 per cent in 2009) versus 42 per cent of private debt (Dodd, 2010, cited from Eurostats).