Fighting the Debt Crisis’ Undertow: Greece and the Eurozone

Abstract

To measure the debt crisis in Europe in general, and in Greece in particular, there are different levels of analysis, rarely examined together: at the global, EU and the national levels. The global level involves the origins of the crisis in the infra-regulated practices of financial entities worldwide, whereas the EU level reflects architectural weaknesses of the European Monetary Union. The national level entails specific vulnerabilities of the national economy. Underlying all this, there has been a total (public+private) debt bubble that has been growing since the 1980s, and an implicit promise of higher standards of living through large market deregulation experiments (chief among them are capital markets and capital mobility deregulation). Delivering on this implicit promise called for an increasing assumption of debt. This was based on the hope that growth in the real economy would justify increasing debt—in a sense outrunning debt growth. Unfortunately, not only did debt growth prove to be too rapid, the growth of finance ended up attracting grey matter away from science and technology, the ultimate productivity-growth booster, and giving finance the grey matter to engineer ever-cleverer ways to raise debt. In some countries, debt growth could be reflected more on the side of private debt (Spain, UK, US, Ireland, etc.) or public debt (Greece, Italy, Portugal), or both, but that distinction is secondary. The key point when it comes to the global level of analysis is that incomes and consumption growth ended up being achieved through practically continuous debt (public and/or public) growth.