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