Abstract
This chapter considers the 2008 international financial crisis, the Eurozone and economic growth in a long term perspective. This systemic crisis has been the most severe among the recurring crises that have marked the “age of global finance” which had begun with the destruction of Bretton Woods. The current crisis led to a world-wide, near-meltdown of the financial and banking system, to the debt crisis and the Eurozone crisis. Contrary to the 1930s the worst has been avoided thanks to bold innovation and the successful cooperation among central banks, national governments and international organizations, and due to the break with policy orthodoxy. Yet, many of the excesses of globalization and of global finance still have to be corrected. Today, the world has to face the tasks of ending the artificially low (and even negative) interest rates and returning to a more market-conform interest rate structure without new financial turbulences as well as of overcoming the vicious circle of excessive debt and stagnation or slow growth. Both Europe and the world would be much worse off without the Euro. Strengthening the Eurozone requires cooperation, discipline and solidarity, not the creation of a European “super state”. In the long term, in order to restore sustained growth, social progress and economic and monetary stability, we also need a new rule-based global international monetary order. It is the responsibility of the main pillars of the liberal and democratic world economic order, Europe, the United States and Japan, to take the initiative and lead it to success.
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Notes
- 1.
In 2011 the Swiss National Bank, in order to protect the Swiss currency from a systematic overvaluation and a resulting downward pressure on the economy announced a policy of maintaining the Swiss Franc exchange rate at 1 € = SwFr. 1.20 through systematic supply of Swiss francs on the currency markets against foreign currencies, primarily Euros. As a result Swiss official reserve holdings increased by a factor of five. This policy was abandoned in January 2015, partly because of the ECB’s (undeclared but obvious) policy to put a downward pressure on the Euro in the currency markets. The Swiss National Bank’s announcement led to a 20 % overvaluation of the Swiss currency (Swiss National Bank 2015).
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- 4.
See for example the “Editorial” of the Chief Economist of the OECD entitled “Avoiding the low-growth trap” in the organization’s 2014 Going for Growth report (OECD 2014).
- 5.
The substantive text of the “fiscal compact”, which has been the mantra of mindless fiscal tightening in the OECD countries, especially in Berlin and Brussels in recent years, starts with the following command: “the budgetary position of the general government of a Contracting Party shall be balanced or in surplus” (Article 3). For the classic German “fiscal hawk” arguments see for example: German Council of Economic Experts (Sachverständigenrat) (2014), and Burret and Schnellenbach (2013).
- 6.
“In the wake of the crisis, one of the most remarkable changes in the banking system and in the world of financial markets is the belated recognition that a new approach is necessary and extensive reforms of the international banking system must occur. There is a sudden and universal consensus that central banks and governments now have a new and increased level of responsibility towards making the financial system work” (Hieronymi 2009b).
- 7.
“The Union shall work for a Europe of sustainable development based on balanced economic growth, a social market economy, highly competitive and aiming at full employment and social progress…” Article I-3/3: The Union’s Objectives, emphasis added (Hieronymi 2005).
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Hieronymi, O. (2016). The Crisis of International Finance, the Eurozone and Economic Growth. In: Rossi, S., Malavasi, R. (eds) Financial Crisis, Bank Behaviour and Credit Crunch. Contributions to Economics. Springer, Cham. https://doi.org/10.1007/978-3-319-17413-6_1
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