Policy Effectiveness and Performance in the Eurozone Crisis

Chapter 9 examines the output legitimacy of Eurozone crisis governance, based in its policy effectiveness and performance. The chapter begins by showing that the crisis was misframed as one of public debt rather than private debt and misdiagnosed as resulting from bad behavior rather than the structure of the euro. The narratives did not reflect the periphery’s pre-crisis low deficits and debt (except for Greece) or account for the impact of competitive wage deflation and current account surpluses in Germany, as well as for bank-spurred wage inflation in the periphery (especially by German and French banks). The chapter then argues that EU actors chose the wrong remedies—budgetary austerity and structural reform instead of growth through stimulus and investment—and failed to devise adequate solutions. This is evidenced by the EU’s lack of effectiveness in monetary policy and investment compared to the US and by the increasing divergence in performance between Northern and Southern Europe. To blame is the failure to complete the architecture of the euro with the necessary economic instruments, not the fact that the Eurozone would never be an Optimum Currency Area (OCA). At fault were equally the excessive socioeconomic costs of austerity, reflected in levels of unemployment, inequality, and poverty, and the perversity of EU-led structural reforms. These “one size fits all” socioeconomic policies failed to take account of differences in national varieties of capitalism and growth models, while taking a tremendous toll on countries under conditionality—not just Greece but also Portugal, Spain, Italy, and even Ireland.