Volume 44, Number 173,
April-June 2013
Adjustment: Origin of the European Crisis
Andrés Musacchio

The current European crisis appears to mark the end of a long cycle that began with the implementation of neoliberal policies at the end of the 1970s. These policies accompanied a strong transformation of the productive mechanism, the dynamics between productive and financial capital and features of the social model. Beyond its variants, the model maintained a re-composition of profit rates – affected by the Fordism crisis – based on regressive income distribution, growing labor flexibility and a gradual dismantling of the welfare state typical of the post-war period.

Regional integration not only went along with the process, but also produced the institutional framework – structured based on a division of functions among local, national and regional bodies – that “naturalized” policies and protected the adjustment path. On the regional level, the creation of a common market, the monetary union outlined in the Stability and Growth Pact and expansion towards the east drove the concentration and regionalization of capital, as well as a struggle to attract resources, precise limits on imbalances in public accounts and a regressive adjustment path. This dimension was complemented by the national maintenance of fiscal policies and negotiations between capital and labor, conditioned at the extreme by regional influences. Finally, the incipient role of local spaces as generators of productive networks and micro-locations confirmed the dislocated nature of the spatial dimensions of negotiations and conflict between labor and capital.

Under these conditions, where nation-states lost the majority of monetary, fiscal and structural policy tools, the adjustment scenario shifted towards the only two areas in which it could intervene against a backdrop of external shocks and imbalances: the labor market and social security systems. In this way, over the past three decades, a substantial portion of advances in income distribution and living conditions for the majority of the population have been dismantled, a phenomenon further aggravated by the fall of the Soviet bloc and the incorporation of Eastern European countries as the periphery of the old European Economic Community.

However, the model brought about serious imbalances, which were more and more difficult to reabsorb. Regressive income distribution limited consumption. In turn, this decelerated investment and led to slow growth of the productive mechanism, associated with savings levels. That is why a process of financialization began, reinforced later by the partial privatization of social security. The consequence was to polarize the imbalances associated with two different varieties of the model (“financialized” neoliberalism and neo-mercantilism), with the generation of speculative bubbles burst by the crisis and the continual process of acquiring asphyxiating public and private debt.

The current process does not appear to be just another jolt to the system, but rather the end of the neoliberal model. Thus the deepening of the adjustment paths that reigned over the last three decades, particularly the most recent, has not produced the desired results. Financial collapse has not yet hit bottom, recession is recurring, financial assistance programs are on the rise without success and social protests are gaining ground, while radical political projects begin to advance in public opinion and electoral races. As such, it is logical to expect an important change in the near future for economic, political and social scenarios.

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Published in Mexico, 2012-2018 © D.R. Universidad Nacional Autónoma de México (UNAM).
PROBLEMAS DEL DESARROLLO. REVISTA LATINOAMERICANA DE ECONOMÍA, Volume 49, Number 194 July-September 2018 is a quarterly publication by the Universidad Nacional Autónoma de México, Ciudad Universitaria, Coyoacán, CP 04510, México, D.F. by Instituto de Investigaciones Económicas, Circuito Mario de la Cueva, Ciudad Universitaria, Coyoacán,
CP 04510, México, D.F. Tel (52 55) 56 23 01 05 and (52 55) 56 24 23 39, fax (52 55) 56 23 00 97, www.probdes.iiec.unam.mx, revprode@unam.mx. Journal Editor: Moritz Cruz. Reservation of rights to exclusive use of the title: 04-2012-070613560300-203, ISSN: pending. Person responsible for the latest update of this issue: Minerva García, Circuito Maestro Mario de la Cueva s/n, Ciudad Universitaria, Coyoacán, CP 04510, México D.F., latest update: August 29th, 2018.
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