chapter  1
Finance-dominated capitalism, re-distribution and the financial and economic crises: a European perspective
Pages 31

The financial and economic crises in Europe have occurred against the background of the long-run developments imposed by finance-dominated capitalism and neo-liberalism since the early 1980s. These developments have been characterised by de-regulation of national and international goods, labour and financial markets, in particular, re-distribution of income at the expense of (low) wages, and rising imbalances of current accounts at the global level and at regional levels, in particular within the European Monetary Union since its inception in 1999. The financial and economic crises, which started with the collapse of the subprime mortgage market in the US in 2007, which gained momentum by the breakdown of Lehmann Brothers in 2008, and which led to a serious recession at the world scale with a decline in real GDP in many advanced capitalist economies not seen for generations in 2008/09, has turned into a currency crisis, the euro crisis since 2010. This crisis is threatening the further existence of the euro because of the specific institutional conditions for economic policy making in the Euro area. First, the explicit guarantee of public debt of member countries by the monetary authority of the currency union, the European Central Bank (ECB), is excluded from the treaties and regulations of the EU. Therefore, member country governments issue debt in a common currency, the euro, but not in their own currency, in the sense that their own central bank would guarantee the monetisation of this debt if required. Second, fiscal transfers among member countries have also been ruled out by the treaties, so that government debt of a single member country is not guaranteed by the community of member country governments as a whole. Third, there have been no efficient mechanisms to prevent the building up of internal and external macroeconomic imbalances across the Euro area countries, which in the crisis contributed to the rapid increases in government deficits and debt and to the massive doubts regarding the creditworthiness of some member countries, given the first two deficiencies. In this chapter we interpret the euro crisis as the most recent episode of the crisis of finance-dominated capitalism. Therefore, we will first analyse the dimensions of increasing inequality for the major European countries during the period of finance-dominated capitalism. Our analysis will focus on the Euro area

member countries Austria, Belgium, France, Germany, Greece, Ireland, Italy, the Netherlands, Portugal, and Spain. Having analysed the trends towards increasing inequality, we will then deal with the current account imbalances within the Euro area which have developed in the business cycle prior to the crisis and distinguish two extreme types of development, the debt-led consumption boom type and the export-led mercantilist type. Against this background we will then examine the euro crisis and the misguided economic policy reactions by European governments and European institutions. Since the dysfunctional economic policy institutions and misguided economic policy making are threatening the further existence of the euro as a currency, we will finally draft an alternative macroeconomic policy approach overcoming these deficiencies. The final section will sum up and conclude.