Last summer, Joseph Stiglitz wrote an article concerning the state of the European Union and what needs to be done to get it out of stagnation. “Much of the euro’s design reflects the neoliberal economic doctrines that prevailed when the single currency was conceived.”  Namely, that low inflation leads to growth and stability, that independent central banks make investors confident, that budgetary abstemiousness makes economies converge, and that capital and work mobility would, if any crisis, ensure stability. Stiglitz then reminds us no empirical evidence supports such beliefs, and therefore proposes banking union, debt mutualisation, leveling industrial policies, new objectives for the ECB, etc., to solve the problem. But he hardly mentions the crux of the matter: how can we come back to pre-crisis levels of growth without creating a new bubble? We would need a smart new deal of regulation to have this cake and eat it! On the opposite, a poor regulation would only aim to enhance the management of bubbles, ingenuously assuming that it will be able to tame the animal spirits should they ever be on the verge of running amok again.

Move along, nothing to see here

Most of what our leaders enacted so far is not smart. It really is about dumping money on problems. First, governments show they are ready to save banks without compensations to keep business running as usual, and then, they create international institutions to bail out indebted governments in exchange of austerity. Their ‘reforms’ always make sure nothing changes. But it should. There is something rotten in the actual international financial system which was already there before 2008. The most spectacular flaw is its structural moral hazard. Most orthodox economists will only focus on this aspect because it may appear as the result of poor state intervention on an otherwise self-regulating market, if there ever was one. But they fail to realize the fact that these failures were precisely demanded by markets as a way to maintain their profit, by achieving complete disconnection between fictitious and productive capital (Burnham, 2010). When deregulation grants private interests the safety of the monetary balances of millions of citizens with no responsibility but to generate profit with it, how come anyone can be surprised if they engage in a credit binge to postpone its fall? The banks really were too big to fail: their collapse would have dragged the entire economy down!

Crisis management for dummies
Crisis management for dummies

When you add other factors such as the technical opacity of derivatives that allows you to get rid of any suspicious financial item as fast as you wish, one may easily understand that market does not need intervention to fail (Crouch, 2011).  Any international stimulus must make sure it will generate a material rather than financial reconstruction, as for a devastated economy. But what if northern Europe only wants to save its capital? Stigilitz ominously concludes that “[…] – if there is not enough solidarity to make politics work – then the euro may have to be abandoned for the sake of salvaging the European project.”  Well, maybe not. Apart from über-indebted Greece, austerity is likely to make the southern labor-force so competitive an export-led recovery may eventually occur thanks to newly profitable eurozone corporations, whatever the social price is (Roberts, 2014). You know what this would mean. See you next bubble!

By: Aymeric Vassas

  • Stiglitz, J., 2014. ‘How to save a broken euro’, on [Accessed 30/11/14]
  • Burnham, P., 2010. ‘Class, Capital and Crisis: A Return to Fundamentals’ in Political Studies Review, Vol. 8, pp. 27-39.
  • Crouch, C., 2011. ‘The Market and its Limitations’ in The Strange Non-Death of Neoliberalism, Polity Press, pp. 24-48.
  • Roberts, M., 2014. ‘Greece cannot escape’, on [Accessed 30/11/14]

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