Controversial and novel features of the Eurozone crisis as a balance of payment crisis
The European crisis appears as the nth ‘this time is different’ episode of the ﬁnancial liberalisation sequence cum ﬁxed exchange rates, capital ﬂows from the centre to the periphery, housing bubble, current account (CA) deﬁcit and indebtedness, default. Although I ﬁnd Reinhart and Rogoff (2009) to be a poorly organised account of the history and nature of defaults, their title really conveys the sense of a recurring pattern of unfortunate events (a better summary is Reinhart 2011). The title of a seminal paper ‘Good-bye ﬁnancial repression, hello ﬁnancial crash?’ (Diaz-Alejandro 1985) also sums up the essence of those events. In this chapter I examine some explanations that have been given for the nature of the balance of payments (BoP) disequilibrium of the Eurozone (EZ) members in relation also to the presumed German mercantilism (second, third and fourth sections). I then discuss two interpretations of the causes of the rise in the sovereign spread of periphery countries (ﬁfth section) that pay insufﬁcient attention to the EZ BoP crisis. Finally, I shall focus on the novel and controversial features of the EZ BoP crisis compared to previous experiences and particularly on the role of the European Central Bank in reﬁnancing banks in peripheral countries (ﬁnal two sections).