Crisis in the Eurozone. Costas Lapavitsas
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Название: Crisis in the Eurozone
Автор: Costas Lapavitsas
Издательство: Ingram
Жанр: Ценные бумаги, инвестиции
isbn: 9781781684450
isbn:
This structural weakness of the eurozone has been much discussed in recent years, including during the course of the current crisis.10 What is less discussed, however, is that it also has implications for the ECB. A key function of a central bank is to manage the debt of its state, handling the state’s access to financial markets and ensuring the smooth absorption of fresh issues. A central bank is also able to acquire state debt directly, facilitating the financing of fiscal deficits for longer or shorter periods of time. But the ECB has no obligation to manage the debt of eurozone member states, and is expressly forbidden to buy state debt. On both scores, the ECB does not behave as a normal central bank. The inherent weakness of the ECB is part of the dysfunctional co-ordination of monetary and fiscal policy within the eurozone, which has been made apparent in the course of the sovereign debt crisis.
Rising public deficits and debt due to the crisis
Turning to the actual path of public finances, it is important to note that public finance reflects the historical, institutional, and social development of each country. There can be no generalisation in this regard as welfare systems are variable, tax regimes reflect past compromises, the ability to collect tax depends on the efficiency of the state machine, and so on. Nonetheless, the Stability and Growth Pact has imposed certain common trends upon eurozone states.
Public expenditure declined steadily in the 1990s, with the exception of Greece, where it remained fairly flat (fig. 19). In the 2000s, expenditure stayed more or less flat, except for Germany, where it continued to fall steadily, and Portugal, where it rose gently. Once again, Germany has had considerable success in imposing fiscal austerity on itself, but also on other countries in the sample. Public expenditure turned upward after 2007 as the crisis hit and states attempted to rescue financial systems while also supporting aggregate demand. Once again, Germany is the exception as expenditure did not pick up.
Fig. 19 Government expenditure (percent GDP)
Source: Eurostat
Fig. 20 Government revenue (percent GDP)
Source: Eurostat
Public revenue showed equal complexity, reflecting the particular conditions of each country (fig. 20). Greek public revenue slumped in the middle of the 2000s as taxation was lowered on the rich, while the operations of the tax-collecting mechanism were disrupted. It rose toward the end of the decade, but not enough to make good the earlier decline. The path of Irish public revenue has been the weakest, though an attempt was made to shore things up in the second half of the 2000s. Spain and Portugal maintained reasonable revenue intake throughout. Public revenue declined across the sample once the crisis of 2007–9 began to bite. Recession and falling aggregate demand were at the heart of the fall.
Declining revenue and rising expenditure, both caused by the crisis, inevitably led to rapid increase in public deficits. With deficits rising, several peripheral and other even out eurozone states arrived in the financial markets in 2009 seeking to borrow large volumes of funds. The pressure to borrow appears to have been particularly strong in Greece, Spain and Ireland, less so in Portugal.
Fig. 21 Government primary balance (percent GDP)
Source: Eurostat
Consequently, and inevitably, national debt also began to rise relative to GDP after 2007 (fig. 22). Note that there are significant differences in the volume of public debt among eurozone countries, again reflecting each country’s respective economic and social trajectory.11 But Greek debt, which has attracted enormous attention since the start of the crisis, was not the highest in the group, and nor has it been rising in the 2000s. On the contrary, Greek national debt declined gently as a proportion of GDP in the second half of the 2000s. Only in Germany and Portugal did national debt rise throughout this period, though gently and from a fairly low base. The sudden rise of public debt across the eurozone in the last couple of years has been purely the result of the crisis of 2007–9.
Fig. 22 General government gross debt (percent of GDP)
Source: Eurostat
Public sector performance in the eurozone can thus be easily summed up. The Stability and Growth Pact has imposed a straitjacket on member states, but its effect has been conditioned by residual sovereignty in each state. The fragmentation of fiscal policy has contrasted sharply with the unification of monetary policy. Nevertheless, eurozone states have generally restrained public expenditure, while maintaining a variable outlook on revenue collection. The decisive moment arrived with the crisis of 2007–9, which pushed peripheral states toward deficits. At that point the underlying weaknesses of integration in the eurozone emerged for each peripheral state, including current account deficits and rising capital imports from the core.
There are no structural reasons why the tensions of debt should have concentrated so heavily on Greece. No doubt the country has a relatively large public debt and therefore faces a heavy need for refinancing, particularly as the budget swung violently into deficit in 2009. But Italian public debt is also high. It is also true that Greek governments have been persistently manipulating data, and that the country faces a large current account deficit. But these pressures could have been handled reasonably smoothly if it was not for speculation in the financial markets. Even speculation could have been confronted decisively, if the eurozone authorities had shown any inclination to bring it to heel. To analyse the interplay of these factors it is now necessary to consider the financial sector, the part of the economy that is most heavily responsible for the crisis of 2007–9.
6. THE FINANCIAL SECTOR: HOW TO CREATE A GLOBAL CRISIS AND THEN BENEFIT FROM IT
An institutional framework that favours financial but also productive capital
The European Central Bank (ECB) and the national central banks constitute the European System of Central Banks (ESCB), which has price stability as its primary objective.12 The ECB has normative power over the national central banks since decision-making on monetary (and financial) policy emanates from the ECB and then reaches national central banks. It can also make recommendations to national authorities relating to prudential supervision of credit institutions and the stability of the financial system.
The ECB is an unusual central bank. It has the exclusive right to authorise the issuing of banknotes in the EU, though notes are issued by individual central banks. It is also responsible for holding and managing official foreign reserves of member states. However, the ECB (and the national central banks) is prohibited from offering overdrafts or other credit facilities to member states, including the purchase of public debt instruments. The ECB is considered independent in the sense that no public institution or individual member state is authorised to influence its operations and decisions. But its substantial independence comes from the absence of a unitary European state with which it would have been obliged to interact.
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