Eurozone Case

Some thoughts

1: The figures of the Eurozone economy reflect slow growth, (danger of stagnation), deflation risk, high unemployment and fiscal stability. Inside the union, that fiscal equilibrium shows serious instabilities with members with high deficit and others with strong surplus.

2: The economic crisis in the Eurozone starts from getting contagious of the 2007 EEUU financial crisis. The banking crisis in the Eurozone forces the countries to finance the disequilibrium of the private banks with public resources to avoid their default. This massive transfer of public resources to the private sector causes fiscal imbalances in the member states that had been complying with the fiscal requirements (3% deficit and 60% debt) established in the Maastricht treaty in 1992, like the case of Spain in 2007.  

The crisis produces the credit collapse, the banks dedicate their resources to buy debt bonds emitted by the state members, having access to ECB credit to almost 0% i.r. As a consequence, the financial circle excluded the productive sector of the economy, restricting them with no credit access in the last 7 years. This restrictive policy accompanied by an also restrictive monetary policy keeping the value of the euro high, making economic activity more difficult due to high export prices from the Eurozone, hence slow down the activity in the production sector.

Meanwhile, the American economy fought the crisis with expansionary monetary and fiscal policies, anti-cyclical. As well as a decided salvation of the banks with public funds and free flotation of the USD.

The crisis has not only been financial and fiscal. The dramatic collapse of credit has provoked the booming of speculative bubbles that were feeding the cheap and abundant credit, like the real-estate sector in Spain.

3: The model of the employment market has shown its stiffness and has resisted to adapt to the crisis necessities.

The Scandinavian model for e.g. makes compatible the protection of job positions, productivity and a low unemployment rate.

A European model that combines competitiveness and social protection, requires a high level of taxes, like the Nordic model. In this case Europe has advance in the opposite direction.

*Greece and Spain political risings: the crisis has consolidates big groups, especially in the regulated markets like banking, telecom, energy, pharmaceutical, insurance, etc. that not always have been monitored successfully by institutions that guard the free competence markets, as a result, frequent abuse from the dominant position to the small consumer. Damaging the middle class, vulnerable from demagogic propositions from the political parties reporting against the excessive harshness of the monetary policies in the Eurozone and the frauds and corruption from economic groups linked to government figures that practice bribery. ( I think we can speak about Greece at some point, maybe not in such a political point of view if you don’t want, this is what came out as I was writing)