Crisis in the Eurozone, by Costas Lapavitsas. Verso, London, 2012, 268 pp., ISBN: 978 1 84467 969 0, £12.99, paperback.
Article first published online: 10 FEB 2014
© John Wiley & Sons Ltd/London School of Economics 2014
British Journal of Industrial Relations
Volume 52, Issue 1, pages 185–187, March 2014
How to Cite
Butzbach, O. (2014), Crisis in the Eurozone, by Costas Lapavitsas. Verso, London, 2012, 268 pp., ISBN: 978 1 84467 969 0, £12.99, paperback. British Journal of Industrial Relations, 52: 185–187. doi: 10.1111/bjir.12049
- Issue published online: 10 FEB 2014
- Article first published online: 10 FEB 2014
This book is the output of collective work produced by members of a group called ‘Research on Money and Finance’ within the School of Oriental and African Studies — not an insignificant observation, given the school's pedigree in heterodox (mostly Marxist) and development economics, as proudly acknowledged by the main author, Costas Lapavitsas, in his preface. The book is divided in three parts, each of which is the ‘revised version’ of work published online by the research group between March 2010 and November 2011. Again, this precision matters because timeliness is both a blessing and a risk for this kind of book, given its direct engagement with pressing political and economic issues. The first part deals mostly with the origins of the ongoing crisis in the Eurozone; the second part focuses on the policies recently followed in three countries on the ‘periphery’ of the Eurozone, between public borrowing and bank bailouts; the last part investigates the institutional underpinnings of the crisis and the prospect of a Greek exit from the Eurozone.
The first point made by the authors is that the Eurozone crisis is not primarily a public debt crisis. While this idea has gained traction among economists and informed observers over the past two years, national and European policy making still relies on the view of the crisis as a mostly fiscal one. Consequently, the primary concern of most Eurozone governments and European institutions remains that of lowering public debt and budget deficits. In the context of a severe downturn, the authors predict that the resulting ‘austerity policies’ will worsen macroeconomic conditions and therefore increase indebtedness.
What the book shows quite well is that the Eurozone crisis is, first and foremost, a crisis of competitiveness in an asymmetrical monetary union. Indeed, one of the most insightful contributions of the book is to show how the core-periphery asymmetries found by heterodox economists in developing countries exist in the Eurozone as well. One of the key factors behind the crisis has been the growing balance of payments disequilibrium between ‘core countries’ such as Germany and ‘peripheral countries’ such as Greece, Ireland, Portugal and Spain. While the former have registered large current account surpluses and financial account deficits since the advent of the euro, the latter have sustained high current account deficits thanks to growing levels of indebtedness. This asymmetry is the structural outcome of the functioning of the European Monetary Union (EMU), or, as the authors put it, a ‘beggar thyself and thy neighbour’ strategy pursued by the core countries on the back of their workers and of the economies of the periphery. These asymmetries have translated into high levels of external debt, fuelled by core banks' willingness to lend to banks of the periphery, and booms in asset prices in the periphery.
The second key causal factor behind the Eurozone crisis is the 2007–2008 worldwide banking crisis, which has created liquidity problems in both the core and the periphery, and led to (a) a generalized increase in public indebtedness due to the mutualization of private debt (in part through bank bailouts) and (b) a decline in the ability of peripheral countries to finance their deficits externally.
The book's third main argument is that the Eurozone crisis has much to do with both the institutional arrangements at the core of the EMU — in particular the disequilibrium between centralized monetary policy and decentralized fiscal policy — and the aspirations of core countries to make the euro a world money. Both favour capital against labour, and reversing this course of action will require a reversal of the balance of power embedded in the governance of the EMU. In his introduction, Stathis Kouvelakis underlines the point made in the book, that is, that ‘Europeanism’ has provided an illusory justification for the neoliberal underpinnings of the EMU that has prevented European left-wing parties from fully understanding the crisis.
The book ends with several chapters dedicated to a possible exit strategy. By contrast with the fears of an outright catastrophe propagated in the mainstream, the authors conclude, convincingly, that only a debtor-led default combined with Greek exit and relying on a new class compromise would yield good results for the economy as a whole and workers in particular.
This book offers an important contribution to the current debates about the Eurozone crisis — a contribution that is grounded in heterodox economics and refreshingly empirical. The timeliness of written commentaries about current events, regardless of their analytic depth, is a double-edged sword. It is up to the authors' ability, and their theoretical or literary ambitions, to overcome this challenge. This is how, for instance, John Maynard Keynes' Economic Consequences of the Peace continues to be read 94 years after its writing and the events it was commenting. In the present case, too, the authors succeed at conveying the impression that their work will not necessarily become obsolete once the crisis moves to another stage or is solved. They do so mainly thanks to their insistence that the crisis is much more deep rooted than is often thought; that its genesis predates the global financial crisis of 2007–2008; and that its significance for European economies goes beyond its present acute phase.
The book's only significant limitation lies in its insufficient attention to collective agency. The authors use vague language to depict social actors and schematically pit ‘capital’ against ‘workers’ and ‘working people’. The book's authors do not claim to present a detailed analysis of class struggle in contemporary capitalism; but they do frequently refer to the need to consider the ‘political economy’ of both the crisis and the various exit strategies, as well as the balance of power now tilted against workers' interests. The argument, therefore, falls short of properly analysing collective agency before, during and after the crisis, and omits the role of unions, the fragmentation of work, and the divergent national and other group interests.
This book is highly readable and clearly aims at a wide readership without sacrificing analytical depth. It is not an informed pamphlet or a didactic narrative, two styles that already abound in the literature about the crisis. Rather, Crisis in the Eurozone stands as an important argument for policy and academic discussions about the crisis and its aftermath. It can also be used as material for advanced undergraduate or graduate courses on financial globalization, on European economies and on contemporary issues in economic policy making.