Crisis of Greece or crisis of the euro? A view from the European 'periphery'

Journal of Balkan and Near Eastern Studies

Volumn 12, Issue 3, 2010, Pages 223-240

  Milios, John ^a   Sotiropoulos, Dimitris P ^b  

^a NATIONAL TECHNICAL UNIVERSITY OF ATHENS   (Greece)

^b UNIVERSITY OF THE AEGEAN   (Greece)

Author keywords

[No Author keywords available]

Indexed keywords

EID: 77956705673     PISSN: 19448953     EISSN: 19448961     Source Type: Journal    
DOI: 10.1080/19448953.2010.506806     Document Type: Article

References (31)

1. Paul Krugman, The Return of Depression Economics and the Crisis of 2008, Penguin Books, London, 2008, p. 19.
2. John Milios and Dimitris P. Sotiropoulos, Rethinking Imperialism: A Study of Capitalist Rule, Palgrave Macmillan, London and New York, 2009.
3. Dimitris P. Sotiropoulos, 'The era of Hayek: neoliberalism as discipline', Thesseis, 108, 2009 (in Greek).
4. Louis Althusser, For Marx, The Penguin Press, London, 1969.
5. John Milios and Dimitris P. Sotiropoulos, Michael Heinrich, Die Wissenschaft vom Wert, Westfaelisches Dampfboot, Berlin, 1999.
6. Klaus Busch, Die Krise der Europäischen Gemeinschaft, Europaische Verlagsanstalt, Frankfurta. M., 1978.
7. Barry Eichengreen, European Monetary Unification: Theory, Practice and Analysis, MIT Press, Cambridge, MA and London, 1997.
8. On the other hand a solution was certainly not to be found through a hankering for fixed exchange rates. The experience of the last 40 years (that is to say, from the last phase of the Bretton Woods and henceforth) has shown unmistakably that the goal of fixed and controlled exchange rates is virtually unachievable in the long term in an international environment of deregulated capital movements.
9. Barry Eichengreen, European Monetary Unification: Theory, Practice and Analysis, MIT Press, Cambridge, MA and London, 1997 pp. 249-256,
10. Charles Wyplosz, 'European Monetary Union: the dark sides of a major success', paper prepared for the Panel Meeting of Economic Policy, London, 21-22 October 2005.
11. Dick Bryan and Michael Rafferty, Capitalism with Derivatives: A Political Economy of Financial Derivatives, Capital and Class, Palgrave Macmillan, New York and London, 2006
12. Maurice Obstfeld, Jay C. Shambaugh and Alan M. Taylor, 'The trilemma in history: trade-offs among exchange rates, monetary policies and capital mobility', The Review of Economics and Statistics, 87(3), 2005.
13. Dimitris P. Sotiropoulos, 'The era of Hayek: neoliberalism as discipline', Thesseis, 108, 2009 (in Greek)
14. Dick Bryan and Michael Rafferty, Capitalism with Derivatives: A Political Economy of Financial Derivatives, Capital and Class, Palgrave Macmillan, New York and London, 2006 pp. 121-123.
15. Ronald I. McKinnon, 'The rules of the game: international money in historical perspective', Journal of Economic Literature, 31(1), 1993.
16. Alpha Bank, Greece and Southeastern Europe. Economic & Financial Outlook, No. 74, May 2010, http://www.alpha.gr/files/infoanalyses/Greece_&_Southeastern_201005.pdf
17. Here Portugal is the striking exception. While the latter has accumulated over the last years one of the highest net external debts in the euro area, the catch-up process with the rest of Europe stalled. In this sense, Portugal has been over the last 15 years in the paradoxical situation of displaying all the signs of overheating without enjoying any acceleration in GDP. Here the deterioration in the current account did not reflect the fast growth in domestic demand (as in the case of Greece and Spain) but a steady decline in the export performance (this 'singularity' of Portugal can be ascribed to a particular ill-adjusted exchange rate at the onset of EMU). For more in this connection see
18. Deutsche Bank, Global Markets Research. Portugal's Difficulties Come from Afar, 12 March 2010.
19. This, be it noted, does not apply in the case of Ireland.
20. Deutsche Bank, Global Markets Research. Greece: A Herculean Adjustment Task, 10 March 2010, http://www.cre.db.com/marketing-research.
21. Barry Eichengreen, 'The crisis and the euro', Working Paper, Elcano Royal Institute, Madrid, Spain.
22. Irving Fisher, 'The debt-deflation theory of great depressions', Econometrica, 1(4), 1933.
23. It is nevertheless advisable to be cautious when it comes to generalizing the above-mentioned conclusions. Similarly, according to the data provided by Eurostat the appreciation of Greek real effective exchange rate (based on the unit labour cost, against the 36 countries included in the basket used by the European Commission) was 20.6 per cent in 2006, 1.3 per cent in 2007, 1.5 per cent in 2008 and 3.9 per cent in 2009, compared with 20.4, 1.6, 3.4 and 4.7 per cent, respectively, in the euro area of 16. Therefore, Greek international competitiveness in 2006-2009 (that is during the period of the noticeable deterioration in the current account deficit) 'has actually improved against the Eurozone average, while it has worsened with respect to Germany (a country in which the average annual growth of nominal compensation of employees per head in the period 2001-2009 did not exceed the 1.4 per cent) and with respect to countries which are experiencing exchange rate depreciation with respect to the Euro'
24. Alpha Bank, Greece and Southeastern Europe. Economic & Financial Outlook, No. 74, May 2010, http://www.alpha.gr/files/infoanalyses/Greece_&_Southeastern_201005.pdf p. 13.
25. Deutsche Bank, Global Markets Research. Germany and the Euro Area, 30 April 2010, http://www.cre.db.com/marketing-research.
26. State interventions in areas outside the eurozone were decisive for stimulating global demand. For example, the fiscal packages in the USA did extend significant protection to domestic demand and from the summer of 2009 onwards the current accounts deficit did start to grow again. In the developing markets, and particularly in South-East Asia, stimulation of domestic demand in China in March 2010 produced a small trade deficit for the first time since 2004. Something similar occurred in the countries of Latin America. The two last mentioned developed regions accounted in February 2010 for 40 per cent of the 10 per cent increase in European exports. We should not forget, either, that devaluation of the euro played a certain role in this upturn in exports.
27. Revealing are the data of Table 1. It is true that one of the reasons Germany and France have played such an important role in defusing the crisis is the overexposure of their banks to the countries of the 'periphery'. Overall the direct exposure of German banks to Greece, Spain, Portugal, and also Ireland and Italy, comes to 20-23 per cent of German GDP, in the order of 3.6 trillion dollars. The exposure of French banks to the same countries is calculated to be 27-30 per cent of the GDP of France, in the order of 2.8 trillion dollars. It should be noted that this borrowing also includes the state debt (yet, government debt accounted for a smaller part of euro area banks' exposure to the countries facing market pressures than claims on the private sector). The states in the eurozone borrow primarily from the banking systems of the eurozone. Indeed at the end of September 2009 the foreign claims of European banks against the public sector of member countries amounted to 2.1 trillion dollars, corresponding to more than 60 per cent of the total foreign bank claims against the states of the eurozone.
28. BIS, Quarterly Review: International Banking and Financial Markets Developments, March 2010, http://www.bis.org/publ/qtrpdf/r_qt1003.htm.
29. Given the eurozone's insistence on pursuing neo-liberal strategies and the absence of fiscal tools at the federal level and a corresponding European budget.
30. We lacked the time and space in the context of the present study to deal with this subject. Briefly (and more or less indicatively) we might mention the following. If the EU is added to the multitude of regions of the planet that sustain their development through an emphasis on exports, we may expect a world with more net savings at the national level (current account surpluses). The USA does not have any particular reason to pursue such a strategy. They will continue to extract other nations' surplus savings for their own benefit, seeing current account surpluses elsewhere being converted into an accumulation of currency reserves in dollars. The dollar will be reinforced in the international financial markets, where it will be deemed the undisputed international currency. The real dilemma for the USA will be having to choose between a high public or private debt. Nevertheless, the point about the USA is that it possesses a developed and dynamic financial sector which plays a central role in organization of the international financial system and will continue to some extent to 'recycle' the international supply of cheap savings as high-yield portfolio investments abroad. It is worth noting that despite its markedly negative investment position, the USA retains significant net investment income.
31. Deutsche Bank, Global Markets Research. Greece: Time to Get Down to the Hard Work, 14 April 2010, http://www.cre.db.com/marketing-research.