Europe: Crisis and Influence

The debt crisis in Europe’s monetary union, sparked by Greece’s recourse to bail-out liquidity in May 2010, is well into its fourth year and does not look likely to end anytime soon. The eurozone has not yet escaped from the recession that followed the global financial crash of 2007-2008. Aggregate per capita GDP remains below 2007 levels. Meanwhile, despite considerable fiscal adjustment, levels of public debt are still too high and they continue to rise as a share of GDP, owing to slow or negative output growth. The reasons for this unhappy state of affairs relate to structural and, largely, systemic flaws in Europe’s economic constitution, which have been brought to the surface after the eruption of the global financial crisis. A review of the origins of the debt crisis helps bring into relief the deeper causes of the present malaise as well as the difficulties in overcoming it.