Neoliberal growth models, monetary union and the Euro crisis. A post-Keynesian perspective

ABSTRACT

The paper offers an account of the Euro crisis based on post-Keynesian monetary theory and its typology of demand regimes. Neoliberalism has transformed social and financial relations in Europe but it has not given rise to a sustained profit-led growth process. Instead, growth has relied either on financial bubbles and rising household debt (‘debt-driven growth’) or on net exports (‘export-driven growth’). In Europe the financial crisis has been amplified by an economic policy architecture (the Stability and Growth Pact) that aimed at restricting the role of fiscal policy and monetary policy. This neoliberal economic policy regime in conjunction with the separation of monetary and fiscal spheres has turned the financial crisis of 2007 into a sovereign debt crisis in southern Europe.

KEYWORDS:

• Euro crisis
• neoliberalism
• European economic policy
• European integration
• financial crisis
• sovereign debt crisis

Acknowledgements

The paper was presented at the SPERI conference 2013, Sheffield, and EISA conference 2013, Warsaw. The author is grateful for discussions there and to Cedric Durand, Gilles Christoph, Karsten Köhler, Paul Auerbach, Alvaro Santos and five anonymous referees for helpful comments. The usual disclaimers apply.

Disclosure statement

No potential conflict of interest was reported by the author.

Notes on contributor

Engelbert Stockhammer is Professor of Economics at Kingston University London and coordinator of the Political Economy Research Group at Kingston. His research interests include PKE, applied macroeconomics, financialisation and income distribution.

ORCID

Engelbert Stockhammer http://orcid.org/0000-0002-5329-3535

Notes

1. A similar set of distinctions can be made with respect to debt. An increase in debt will have expansionary effects as far as debtors have a higher propensity to spend than creditors. However, it will also have a negative effect, typically delayed, as higher debt levels imply higher interest payments from debtors to creditors, which dampens aggregate demand (Dutt 2006).

2. A similar argument can be made for mainstream economics. New Keynesian economics has a short-run role for aggregate demand, but asserts the dominance of supply-side factors in the long run and it usually is silent on the possibility of wage-led growth. Indeed, a downward-sloping labour demand function, i.e. a profit-led demand regimes, are routinely assumed.

3. There are several recent attempts to update Marxian theory of money and finance (e.g. Crotty 1985, Lapavitsas 2000, Bellofiore 2005). These build on Marx’ analysis of credit cycles in volume III of Capital and usually heavily draw on PK theory and to various degrees go beyond a commodity theory of money. In so far as they do that they are, often implicitly, parting with the labour theory of value: if money is not a produced commodity, then commodity exchange is not an exchange of equivalents as claimed in Volume I of Capital (Marx 1976).

4. Jessop (2011) moves further by advocating the concept of variegated capitalism highlighting the conflictive nature of capitalism, which gets only temporarily regulated by spatio-temporal institutional fixes. His analysis recognises forces that transcend nation states like financialization and globalization, but also the differentiating forces brought about by centre–periphery relations. Overall he presents an ambitious research program for societal analysis, but does not offer an analysis of the economic dynamics itself.

5. There are some Marx-inspired authors, who report evidence for profit-led growth regimes (e.g. Barbosa-Filho and Taylor 2006)

6. Two qualifications are in place. First, actual trade relations are more complex relations than indicated here. For example, Germany's largest export surpluses are with Austria and with France. Austria has had export surpluses itself. France's export position was rather balanced in the first half of the 2000s and deteriorated thereafter. Both countries had surpluses with southern European countries. Second, financial flows are quite independent of trade imbalances. In particular French and British banks have had strong exposure to southern European banks, reflecting their positions as financial centres.

7. Bonefeld (2002) argues that it was a political strategy of national capitalist classes to pursue European integration as a means to curtail corporatist national states that proved resilient domestically.

8. The ‘rescue packages’ have in no case led to a decline in public debt. For example in the case of Greece public debt has increased from 113% 2008 to 160.6% 2012, in Ireland from 44.2% to 116.2% (according to the EC's 2012 spring forecast, European Commission 2012). Essentially the ‘rescue packages’ have been gigantic machineries to transform private debt into public debt. Credit Suisse estimates that the second Greek rescue package reduced the private-sector share in the holding of Greek government debt from 62% to 30% (Credit Suisse Economics Research 2012).

9. It is difficult to assess the relative impact of this historically. After the EMS crisis the deficit countries also pursued austerity policies, but the effects of the latter were alleviated by simultaneous devaluation.

10. Nölke (2014) offers a comprehensive review of Comparative Political Economy debates on the Euro crisis, which focuses on the VoC literature, but also covers, if more selectively, some of the HM-IPE and PKE literature.