Volume 45 Number 177,
April-June 2014

Fractures and Crisis in Europe, by Ignacio Álvarez, Fernando Luengo and Jorge Uxó, Madrid-Buenos Aires,
Ed. Clave Intelectual-Eudeba, 2013.

The current economic crisis has been the focus of various publications with diverse approaches, and this book is another example. Divided into three parts, its analysis centers on three essential aspects: a) identifying the structural causes of the crisis, b) how governments responded to the crisis, and the fallout, and c) alternative proposals from the authors for a way out of the crisis.

To explain the current economic crisis, the authors begin with the hypothesis that, “although the crisis was triggered by financial reasons, it reflects and can be explained by problems linked to accumulation dynamics and the distribution of surplus, the very essence of the community project and the globalization of markets.” The work therefore analyzes four very closely related areas: 1) the unequal distribution of income and wealth, 2) the financialization of economies, 3) productive asymmetries in the community space, and 4) the imbalances generated with the introduction of an economic and monetary union.

  1. Unequal distribution of salaries leads to reduced consumption and production, induced by a drop in investment as a result of lower internal demand, which is not compensated for by exports.

  2. To maintain consumption, private over-indebtedness emerges, which slows down productive investment and disproportionately increases the concentration of capital and financial power. The uncontrolled growth of credit and strong external imbalances seen in deficit economies — which are financed by funds from countries with a surplus in the Eurozone — make the overall economic system profoundly fragile, because economic growth was sustained on a financial and real-estate bubble.

  3. Also, the productive and structural heterogeneity of the Eurozone has consolidated central-peripheral relationships on the basis of differentiated productive specialization, where the weak productive structure of peripheral countries generates constant and growing deficits in their public accounts balances, financed by the financial systems of central countries in the Eurozone, on the basis of accumulated reserves from constant surpluses resulting from their external relations.

As a result, the Great Recession is the consequence of imbalances derived from an unsustainable accumulation model brought on by a consistently “vicious cycle” in which accumulated private debt and the international financial crisis interrupt the flow of credit, sink growth and employment, create a crisis in public finances and make risk premiums go up due to austerity policies and inaction from the Central European Bank.

Facing this reality, the authors ascertain that, “the policies that have been applied have been a complete failure. Far from resolving the problems at the root of the crisis, they have aggravated them, and other variants of the original crisis have emerged, especially associated with sovereign debt.” The insistence on austerity and cuts has deepened the economic crisis, worsened job destruction and productive capacities and destroyed the social fabric, without managing to reduce any of the fiscal imbalances that were set as an absolute priority.

As such, the authors maintain that “exceptional measures are needed to allow European economies to emerge from the recession. In light of the currently degraded state of basic public services and the massive destruction of jobs, it will also be necessary, alongside recovery, to profoundly rework the economic and social model.” It will not be possible to emerge from the Great Recession by simply recovering to the same activity levels as before the crisis, maintaining the same (or similar) economic functioning.

To this effect, the authors defend alternatives to current policies based on market principles, which will mean, “diverging from the neo-liberally inspired path taken over the past three decades, and replacing a model based on fragile growth and debt, finances and increasing inequalities — which led to the crisis — with another materially sustainable economic and social model.” This alternative economic policy would have the following central pillars:

  1. Reverse austerity policies and replace them with a fiscal stimulus policy that would jump start the economy and help the zone emerge from the recession, aiming to halt falling incomes and job destruction. This would mean, on the one hand, acknowledging that economic growth alone does not resolve economic and social problems, and that the environmental consequences of growth cannot be avoided. It would also involve peripheral economies reconverting their productive models through the active and strategic action of the public sector, moving away from a model based on labor-intensive sectors, low productivity and low added value, which is one of the causes of asymmetries in the Eurozone.

  2. Make the issue of unemployment and the creation of decent jobs the heart of economic policy, to produce a qualitative change in income distribution by increasing wages.

  3. Make the financial system work in service of social needs and solve the issue of over-indebtedness, by enforcing stricter financial regulation that removes the separation of finances and productive activity, reduces the development of speculative bubbles and limits the excessive influence of finance on the economy.

  4. Because the ways in which the Eurozone functions, in addition to other factors, have brought on the economic crisis, while community institutions have imposed an erroneous strategy focused on central countries and the economic elite, it is essential to rework and relaunch the European project.

This book therefore provides a set of proposals based on the rigorous and precise analysis of the causes that have led to the European economic crisis, mainly in peripheral countries, as well as the perverse consequences of the majority of austerity policies imposed by the hegemonic financial groups and community and international institutions. This book also, and most essentially, aims to set forth a critical proposal for an alternative economic policy, validating the main slogan co-opted by social protests… “Yes, we can.”

Antonio Palazuelos
Universidad Complutense de Madrid

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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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