About the Book

• Extremely timely, with special emphasis on the current Euro debt crisis
• Complete overview of EU economics and politics from the formation of the EU up to the present
• Analyses the interdependency between the economic crisis and current institutional changes in the EU

This book presents an overview of the economics and politics implemented in the European Union and especially the Eurozone during the crisis of 2008-2012. Although it focuses on these four years, the analysis starts from the establishment of the European Union and covers the period up to the outbreak of the Cypriot banking crisis in mid-2013. The long-term creation of structural changes in European economics and politics is associated with a growth lag within the global economic environment dynamics. The economic and political consequences of the crisis and the development of new institutions will shape the future growth dynamics towards a Fragmented European Federation.

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Contents

• 1 Introduction.......................................... 1
  Part I The European Crisis

• 2  The Evolution and the Current Status of the European FinancialCrisis....................................... 7 
• 2.1  EvolutionoftheEuropeanUnion ....................... 7 
• 2.2  TheHistoricalEvolutionoftheCrisis .................... 13 
• 2.3  AnInitialApproachtotheCrisis ....................... 16 
• References............................................ 20 

• 3  TheGreatEuropeanRecession ........................... 21 
• 3.1  TheCostsoftheGreatRecession ....................... 22 
• 3.2  TheRedistributionConsequences ....................... 25 
• 3.3  TheComebackLagandtheDivergenceEvolution ........... 30 
• References............................................ 31 

Part II The Structural Elements of the Crisis

• 4  TheEuropeanSuboptimalandSegmentAreas ............... 35 
• 4.1  TheLimitationsofEurozoneMemberCountries ............ 36 
• 4.2  TheSegmentedEconomicandSocialAreas ............... 38 
• References............................................ 42 

• 5  EuropeanStockAsymmetries ............................ 43 
• 5.1  PopulationandGeostrategyAsymmetries ................. 43 
• 5.1.1  PopulationBalances ........................... 44 
• 5.1.2  GeostrategyBalances .......................... 47 
• 5.2  TheEconomicStockImbalances ....................... 48 
• 5.2.1  Debt:PublicandPrivate ........................ 48 
• 5.2.2  TangibleandIntangibleAssets ................... 49 
• References............................................ 51 

6 EuropeanFlowImbalances .............................. 53

• 6.1  PublicDeficits..................................... 53 
• 6.2  TheExternalAccounts ............................... 54 
• 6.3  SavingsandInvestments ............................. 58 
• 6.4  EmploymentandInflation ............................ 59 
• 6.5  TheCompetitivenessImbalances ....................... 60
  References............................................ 64

7 Culture, Institutions and Politics as Crisis Generators . . . . . . . . . . 65

• 7.1  CulturalBackground ................................ 65 
• 7.2  PoliticalBalances .................................. 67 
• 7.3  Governance....................................... 70 
• 7.4  InstitutionsandIncentives ............................ 71
  References............................................ 75

Part III The Policy Response

• 8  TheGrowthLagandStrategicChoices ..................... 81 
• 8.1  TheLong-TermGrowthLag .......................... 81 
• 8.2  TheGrowthPriorities ............................... 83 
• 8.3  The Attainment of Long-Term Competitiveness and Export
  Orientation....................................... 84 
• 8.4  TheBank-BasedGrowth ............................. 87 
• 8.5  DebtManagement.................................. 88 
• References............................................ 94 

• 9  FiscalPolicyandConsolidation ........................... 97 
• 9.1  TheEffectivenessofFiscalPolicy ...................... 97 
• 9.2  Contractionary or Expansionary Austerity Policy . . . . . . . . . . . . 99 
• 9.3  Tax-Based Versus Spending-Based Fiscal Consolidations . . . . . 101 
• 9.4  TheSizeofFiscalMultipliers .......................... 102 
• 9.5  FiscalTighteninginaLiquidityTrap .................... 104 
• 9.6  TheRoleofPerceivedRiskofSovereignDebt............. 105 
• 9.7  CanAusterityBeSelf-Defeating? ....................... 106 
• 9.8  Synchronized Fiscal Consolidations and Spillover Effects . . . . . 109 
• 9.9  FiscalConsolidationProgramsAftertheEuro .............. 110 
• References............................................ 115 

• 10  TheSupplySidePolicies ................................ 119 
• 10.1  SupplySideRationale .............................. 119 
• 10.2  StructuralReforms ................................. 120 
• 10.3  The Required Adjustment and the Adjustment Speed . . . . . . . . 123 
• 10.4  The Effectiveness of Economic Policy in Europe . . . . . . . . . . . 126 
• References............................................ 131 

• 11  MonetaryPolicy....................................... 133 
• 11.1  TheImbalancedMonetaryPolicy ...................... 133 
• 11.2  RebalancingandInflation ............................ 137 
• 11.3  The Effectiveness of Monetary Policy and the
  LiquidityTrap.................................... 140 
• 11.4  TheFinancialTransactionTax ........................ 141 
• References............................................ 142 

• 12  ThePolicyoftheEuropeanCentralBank ................... 145 
• 12.1  TheOpenMarketOperations ......................... 145 
• 12.2  TheECBasaTreatyChanger ........................ 149 
• 12.3  TheMultipleBondEquilibria ......................... 150 
• 12.4  TheEuro’sConfidence .............................. 153 
• 12.5  TheRoleoftheLenderofLastResort .................. 155 
• References............................................ 158 

• 13  Restoration of the Banking System and the Banking DeleveragingProcess ................................... 159 
• 13.1  ContagionandSystemicRisk ......................... 159 
• 13.2  TheFinancialMarketFragmentation .................... 161 
• 13.3  WeakEuropeanBanks .............................. 163 
• 13.4  The Credit Crunch and the Financing of the Real Economy . . . 165 
• 13.5  TheDeleveragingProcess ........................... 166 
• References............................................ 173 

• 14  TheRoleoftheIMFintheEuropeanEvolution.............. 177 
• 14.1  TheCharacteroftheIMF ............................ 177 
• 14.2  Global Financial Governance and the IMF’s Role . . . . . . . . . . 181 
• 14.3  TheIMFinEurope................................ 181 
• 14.4  TheIMFandSovereignDebtManagement ............... 183 
• 14.5  ConditionalityandSupply-SidePolicies ................. 185 
• 14.6  TheIMFandDomesticPolicies ....................... 187 
• References............................................ 189 

Part IV The Political Economy of European Synthesis and the Medium Future

15 DebatesandChoices .................................... 193

• 15.1  The Political Economy Approach: Ideas and Cultural
  BackgroundDiversification .......................... 193 
• 15.2  TheCriticalDebates ............................... 195 
• 15.3  TheSocialModelControversy ........................ 198 

References............................................ 201

• 16  TheEuropeanSynthesis ................................. 203 
• 16.1  TheEuropeanResponsetotheCrisis ................... 203 
• 16.2  FiscalandMacroManagement ........................ 204 
• 16.3  Financial Stabilization, Banking Sector Reorganization and
  theDeleveragingSchedule ........................... 206 
• 16.4  TheStructuralReadjustment .......................... 213 
• References............................................ 221 

• 17  TheMedium-TermFuturefortheWorldandEurope .......... 223 
• 17.1  The Medium-Term Future for the World: 2015–2025 . . . . . . . . 223 
• 17.2  TheTwoPotentialWorlds ........................... 226 
• 17.3  TheEuropeanEvolution ............................. 228 
• References............................................ 232 

• 18  EconomyandPolitics ................................... 235 
• 18.1  An Integrated Approach to the Crisis and Politics . . . . . . . . . . 235 
• 18.2  ThePoliticalEconomyoftheEuropeanCrisis ............. 239 
• 18.2.1  Geostrategic Issues and Economic Nationalism . . . . . . 239 
• 18.2.2  Beggar-Thy-NeighborPolicies .................. 243 
• 18.2.3  The Euro as an Exchange and Reserve Currency and
  theInternalRepercussions ..................... 244 
• 18.2.4  The Democratic Deficit and Monetary Policy . . . . . . . 245 
• 18.2.5  PoliticalShiftandEconomicPolicy .............. 247 
• 18.2.6  Towards an Indebted Fragmented European
  Federation................................. 249 
• References............................................ 258 

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Sample Pages

Chapter 2The Evolution and the Current Status of the European Financial Crisis 

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