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

Assuming that the limit of sustainability is around 5%, the long-term situation becomes rather complex, especially due to the formation of swollen private external debt. However, based on hypotheses sustained in theories such as the monetary approach to the balance of payments, neither local nor regional authorities considered the situation dangerous, especially in comparison with that of other countries that demonstrated risky public debt nearing 60% of the pact, such as in Germany and France, where stronger adjustments had to be imposed.

Germany was precisely an example of the other variant of neoliberalism, which can be called neo-mercantilism. This focus centers on exports. Rigid price stability and competitiveness reinforced by labor market adjustments and technological transformations produce a model that combines growing exportable balances (Germany, an extreme case, went from an export of level of 22.7% of the product in 1993 to 50.1% in 2011, a process that has been accelerated since 1998), a retreating internal market and public accounts in permanent tension. As long as taxes tend to fall on indirect contributions, regressive income distribution weakens the taxable base.

The concern of European authorities regarding the supposedly delicate fiscal situation of some countries in the neo-mercantilist bloc in years prior to the crisis did not appear to respond to a real danger, and it was even less seen as a potential risk greater than the deficits of the current accounts in the other set of countries. In any event, the potential destabilization factor was also present in the balance of payments, although in a different way. In particular, Germany had tended to play a similar role in Europe as the United States had taken on in the 1920s, systematically removing liquidity from the system until suffocating it and falling prey to its own crisis. Enormous commercial balances have not corresponded to compensatory capital flows. While deficit partners continued to fall into debt, “bipolar” Europe continued to increase imbalances. With the first signs of turbulence, the collapse was inevitable, and even Germany had to face serious fluctuations in demand for its products, as well as in charging the loans that had been granted.

Regional and national reactions to the crisis have still not presented a radical new approach to the situation. Beyond a few lukewarm programs to stimulate demand – framed in the aid packages from central countries to their business nuclei – such as car exchange plans, the reaction has been to strengthen fiscal balance, cut spending, make salary adjustments and increase labor market flexibility. Meanwhile, the anti-inflationary policies of the European Central Bank leave no room for devaluation of currency and relief for the credit market. As such, each round of adjustments only further drives economic collapse and social protest. The survival of the neoliberal model and its exit paths are at stake here. As the crisis grows deeper, the path to profound change seems ever closer.

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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,
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