Crisis in the Eurozone. Costas Lapavitsas

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СКАЧАТЬ 1 focuses on the peripheral countries of the eurozone, above all, Greece, Portugal, Spain and Ireland. When appropriate, Italian data and performance have also been considered, though Italy cannot easily be considered a peripheral country to the EU. The core of the eurozone is taken to comprise Germany, France, Belgium and the Netherlands.5 Comparisons are usually made with Germany, the leading country of the core and the EU as a whole. The introduction of the euro in 1999 – and 2001 for Greece – provides a natural point of reference for all comparisons. Each country has had its own distinctive institutional, social and historical trajectory, and therefore some pretty brutal generalisations are deployed below. But there are also evident commonalities which derive in large part from worldwide patterns of economic development in recent years, as well as from the nature of the EU and the eurozone.

      Thus, chapter 2 discusses macroeconomic performance of peripheral countries compared to Germany. Chapter 3 moves to labour markets, the remuneration of labour and the patterns of productivity growth. Chapter 4 then turns to international transactions particularly within the eurozone. On this basis, chapter 5 considers the evolution of public finance and the expansion of public indebtedness after 2007. Chapter 6 places the growth of public debt in the context of the operations and performance of the financial sector following the crisis of 2007–9. Chapter 7 concludes by considering the alternatives available to peripheral countries.

2. MACROECONOMIC PERFORMANCE: STAGNATION IN GERMANY, BUBBLES IN THE PERIPHERY

Growth, unemployment and inflation

      Growth rates among the countries in the sample were generally lower in the 2000s than in the 1990s (fig. 1). This fits the pattern of steadily declining growth rates across developed countries since the late 1970s. But there is also significant variation. Ireland registered very high rates of growth in the 1990s, driven by investment by US multinational corporations that were given tax breaks. Profit repatriation has been substantial, creating a large disparity between Irish GDP and GNP. Much of Irish growth has been due to transfer pricing within multinationals, thus also inflating productivity growth. Greek growth also accelerated in the early 2000s, bolstered by expenditure for the Olympic Games. Spanish growth, finally, has been reasonably high throughout the period.

      Fig. 1 GDP Growth Rates

      Source: Eurostat

      However German growth rates have remained anaemic throughout, with the exception of a minor burst in the second half of the 2000s. Exports have played a significant role in causing this uptick of growth, a development of the first importance for the evolution of the eurozone. Portuguese and Italian growth has barely diverged from German growth rates since the introduction of the euro.

      Unemployment rates are consistent with growth rates (fig. 2), showing convergence toward lower levels in the 2000s compared to the 1990s. This is mostly because Spanish and Irish unemployment rates declined rapidly at the end of the 1990s. Spanish unemployment, however, remained at the high end of the spectrum throughout, and has risen faster than in other countries once the crisis of 2007–9 materialised. Unemployment seems to expand rapidly in Spain at the first sign of economic difficulty. The Greek labour market is probably not very different, bearing in mind that official statistics tend to underestimate unemployment. Greek unemployment rose rapidly in 2009, once the crisis had hit hard. Equally striking, however, have been the high rates of German unemployment throughout this period, if anything exhibiting an upward trend. The same holds for Portugal, which has followed Germany in this respect too.

      Fig.2 Unemployment Rates

      Source: Eurostat

      Inflation rates, on the other hand, present a more complex pattern (fig. 3). Rates converged to a fairly narrow range of 2–4 percent in 2001, at the time of the introduction of the euro. However, in the following three years rates diverged, only to converge again in 2004, this time to a narrower range of 2–3 percent. Inflation targeting by the ECB and the application of a common monetary policy took some time to produce the desired effect. The picture is at most a qualified success for the ECB as inflation rates accelerated again in 2007–8. The most important element of figure 3, however, is that German inflation rates have remained consistently below the rest throughout the period, rarely exceeding 2 percent. This performance lies at the heart of the problems of the eurozone.

      In short, the German economy has produced a characteristic macroeconomic performance throughout the period, marked by mediocre growth, high unemployment and low inflation. German performance has set the tone for the eurozone and placed its stamp on the operation of the euro. The sovereign debt crisis has its roots as much in the performance of Germany, as it does in the actions of peripheral countries.

      Fig. 3 Inflation Rates (Harmonised Index of Consumer Prices)

      Source: Eurostat

Investment and consumption

      A closer look at the components of aggregate demand gives further insight into macroeconomic performance. Before looking at investment and consumption, however, note that the economies in the sample are generally service-based. The secondary sector contributes slightly less than 30 percent of GDP in Germany, Italy, Spain and Portugal. It amounts to roughly 45 percent of GDP in Ireland, but that is largely due to the presence of multinationals. Greece is also an exception, the secondary sector standing at about 20 percent of GDP – an aspect of persistent de-industrialisation since the 1980s. Agriculture makes a minor contribution to output in all eurozone countries.

      Investment performance has been poor, with the exception of Spain and Ireland (fig. 4), both of which even underwent investment booms in the late 2000s. But Irish investment in the 1990s was in large part due to US multinational activities. Generally, there has not been a strong wave of investment in the eurozone.

      Fig. 4 Gross Fixed Capital Formation (percent of GDP)

      Source: Eurostat

      Fig. 5 Gross Fixed Capital Formation Net of Housing (percent of GDP)

      Source: Eurostat

      A better picture of underlying trends is given by investment net of housing (fig. 5). It then becomes clear that the investment boom in Ireland in the 2000s was primarily due to a real estate bubble. The Spanish investment boom was also heavily based on real estate. Investment in the productive sector has been generally weak in all the countries considered.

      Consumption, on the other hand, has remained pretty flat relative to GDP, with the exception of Portugal where it rose significantly after the introduction of the euro (fig. 6). The striking aspect of consumption, however, is the exceptionally high level of Greece, rapidly approached by Portugal in the second half of the 2000s. High household consumption has been the mode of integration for both countries in the eurozone. This is a significant difference with Spain and Italy, and has important implications for indebtedness, as is shown below. The other exception is Ireland, where private consumption has been a very low proportion of GDP.

      The patterns of consumption are broadly reflected in saving (fig. 7). For both Greece and Portugal saving as a percentage of GDP became negative in the second half of the 2000s. Thus, high and rising consumption has been supported by rising household debt. However, saving has also declined СКАЧАТЬ