Volume 44, Number 173,
April-June 2013
Adjustment: Origin of the European Crisis
Andrés Musacchio*
Date received: June 13, 2012. Date accepted: November 30, 2012

The goal of this work is to analyze the impact on the European Union of institutional transformations to the adjustment policies of the nation states since the 1980s in the face of external shocks or internal problems. The loss of instruments of economic policy focused adjustments on the labor market and social security, driving regressive income distribution, the partial dismantling of the welfare state and precarious employment. These tendencies were reinforced with the need to retain or attract investment in a context of strong economic competition due to location, which fostered capital “friendly” policies at the expense of labor standards and income distribution. These issues have largely contributed to the combination of debt and stagnation, which are at the root of the current crisis.

Keywords: European Union, labor market, income distribution, crisis, neoliberalism

In the midst of a debate surrounding the fallout from a decade of changes to the economic, distributional and social patterns of Latin America, the European Union is going through a difficult crisis, which, in some ways, can be compared to the crises that other countries underwent decades ago. Although doubt is being cast upon the political, social and economic effects of systemic processes that have led to a more flexible labor market, regressive income distribution and the dismantling of social policies, these trends have been predominant in the approaches governing the policies of the eu and member nations. The crisis that has shaken up Europe since 2008 has still not impacted the policies meant to help the continent emerge from this time of economic difficulty. Adjusting fiscal accounts by reducing spending and freeing up resources for debt payment, as well as implementing more flexible labor conditions and salary stabilization, together with a monetary policy guaranteeing price stability (even at times when deflation is a danger), together make up the cocktail of policies that have been proposed and executed to ameliorate the effects of the crisis.1 The gradual worsening of the current complex situation, however, casts doubt upon the merits of this adjustment path. The question is thus whether European countries are not fully adopting the recommended measures or if these policies are merely a continuation of those that led to the crisis, and as such, are making the situation worse.

This work shall support the latter hypothesis. The path of adjustment upon which the neoliberal model has been structured since its beginnings, as well as the crisis, constitute the breaking point of this model’s limits and contradictions. Initially a policy to stimulate the supply of goods and pull the European economy out of the stagnation of the 1970s, the wave of neoliberal reforms ended up producing a drastic regressive income redistribution and partial reversal of the labor and living standards achieved in the post-war period. A fundamental part of this approach was transforming the integration process, which served to restrict national policies in order to protect the neoliberal framework As we have shown in previous works (cf. especially Musacchio, 2011), this allowed for an effective increase in earnings rates, but in the framework of reduced demand, this also generated extremely slow production and investment growth. Overly optimistic growth projections – and the maintenance of policies responsible for this – affected the well being of fiscal accounts and led to a permanent adjustment policy. However, this adjustment occurred in the framework of an institutional change that limited the freedom allowed in the mix of policy tools and in the affected sectors. The center of adjustments was progressively situated over labor markets and social security. The fall in demand and the growing gap between savings and investments further drove the tensions that resulted in the crisis.

The following sections will analyze these processes in detail, starting with the productive transformations that occurred following the crisis of Fordism. We will link these transformations to the institutional changes that defined the features of the new model and the spaces for adjustments. Finally, we will connect both phenomena with the current crisis and immediate prospects for the future.

*Researcher at the Institute for Historical, Economic, Social and International Studies in the Economic Sciences Department (uba)/conicet. Argentina. E-mail: andresmusacchio@hotmail.com

1 The “official vision” is detailed in a document published by the Commission, entitled European Economy (2009).

Published in Mexico, 2012-2017 © D.R. Universidad Nacional Autónoma de México (UNAM).
PROBLEMAS DEL DESARROLLO. REVISTA LATINOAMERICANA DE ECONOMÍA, Volume 49, Number 193, April-June 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,
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