International Bubbles, European Currency Union, and National Failures: The Case of Greece and the Euro Crisis

Abstract

Europe is going through a deep crisis, arguably the most dangerous since the foundations were laid for the European political order after the end of the Second World War. The crisis will shape Europe and european integration for years to come. Long gone is the tide of Euro-enthusiasm that helped raise the Euro-boat at the beginning ...It all began with the bursting of the biggest financial bubble since the Great Depression.  Continental Europe was not at the origin of this bubble. The Anglo-Americans had provided the ideology and the instruments, and the rest of Europe followed with a mix of anticipation and embarrassment characteristic of young virgins. Private and public debt kept on rising for many years, thus helping to preserve consumption levels in the West (and politicians in power) that were clearly unsustainable in the long run (Hamerijck 2009, Roubini & Mihm 2010).  Deregulated financial markets grabbed an ever increasing share of the economic pie, while their operation resembled more and more that of a casino...When the bubble first burst in that obscure segment of the US financial industry, the sub-prime market, most Europeans believed, or wanted to believe, it was none of their business.  With the benefit of hindsight we of course know they were dead wrong. The crisis spread rapidly to the whole financial sector, the most globalized part of the world economy. And then it spilled over to the real ecnomy, leading to negative rates of growth in GDP in North America and Europe that had not been experienced since the 1920s and 1930s.