Chapter 8: The European Financial and Economic Crisis: Alternative Solutions from a Post-Keynesian Perspective
1 8.1 INTRODUCTION Against the background of finance-dominated capitalism and its macroeconomic consequences outlined in the previous chapters, and as the latest outcome of the world wide financial and economic crisis, which started in 2007 in the US and rapidly spread over major parts of the world economy, in late 2011 the European Union (EU) and the Euro area are facing the most serious crisis since the introduction of the euro in 1999. Greece in early 2010, Ireland in late 2010 and Portugal in early 2011 were the first three Euro area economies with serious public debt problems, and there are serious concerns that more member countries might follow.2 These problems triggered massive increases in interest rates on public debt of these economies and finally public debt crises with rescue measures introduced by the EU member countries together with the International Monetary Fund (IMF). The financial and economic crisis in the Euro area has revealed a number of important flaws in the economic policy framework in Europe. It has become clear that the EU and the Euro area suffer from a serious lack of appropriate institutions and policy concepts which would allow for coping with the crisis – or would even have prevented the crisis. First, the explicit guarantee of public debt of member countries by the monetary authority of the currency union, the European Central Bank (ECB), is excluded from the treaties and regulations of the EU. Therefore, member country governments issue debt in a common currency, the euro, but...
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