Addressing the rationality of 'irrational' European responses to the crisis: a political economy of the Euro Area and the need for a progressive alternative

Sotiropoulos, Dimitris; Milios, John and Lapatsioras, Spyros (2015). Addressing the rationality of 'irrational' European responses to the crisis: a political economy of the Euro Area and the need for a progressive alternative. In: Bitzenis, Aristidis; Karagiannis, Nikolaos and Marangos, John eds. Europe in Crisis. New York: Palgrave Macmillan, pp. 67–76.



Half a decade has passed since the subprime market financial meltdown, which was the onset for the Euro Area (EA) crisis. The European project has entered its second, less optimistic phase. The stylized facts of the first phase have been widely discussed during the last years, not always in an illuminating or coherent way. cross-country differentials in growth and inflation, persistent current account (or financial account) imbalances, real effective rate appreciation (mostly for countries with current account deficits), and the setting up of a leveraged and highly integrated banking system were the most striking developments. Having in mind the crisis of the exchange rate mechanism (ERM) of the European Monetary System (EMS), all these events may give a feeling of déjà vu. Nevertheless, both the protagonists and the stage (the institutional framework) are different this time; we have not seen the final act yet. Given the character and the long history of the euro project and given its nature as a mechanism for organizing the interests of capitalist elites, anticipating its demise is not a safe bet.

The European Monetary Union (EMU) is a sui generis monetary union: one without a central authority possessing the typical characteristics of a capitalist state. Two other points about the EMU are also worth mentioning. first, the EMU sets up a context of symbiosis that elevates default risk to secure austerity. Second, it must rely on the elimination of "moral hazard" as the only way to let different capitalist formations be governed according to the neo-liberal agenda, thus aggressively promoting the interests of capital. Official responses must not block the workings of financial markets, even during the crisis; they must exist only in a status of complementarity to markets (see the analysis in Sotiropoulos et al. 2013).

This chapter revisits and challenges the theoretical roots of the main-stream political responses to the crisis. It also sets the background for the discussion of an alternative anti-austerity context. this debate is crucial since Europe is in the midst of an institution building process.

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