The Eurozone crisis: a “consensus narrative”

Courtesy of VoxEU, here.

24 replies on “The Eurozone crisis: a “consensus narrative””

Yes it is useful to attempt to establish a consensus. Not wanting to split hairs but a couple of points:

1. “EZ leaders faced the dual challenge of fire-fighting and institution-building – all in a situation where the interests of debtors and creditors diverged sharply and European electorates were closely following developments.”

I’m familiar with some fairly typical members of European electorates and can assure everyone they were generally following developments loosely, partially and confusedly.

Electorates outside the periphery made much less effort to understand economic developments.

Political strategists were following developments closely (not always with a good understanding) and imagining how electoral advantage might be gained. This is different to “electorates”.

Journalists , who were responsible for providing electorates with information and insight about those developments, generally struggled to understand technical aspects of developments, their economic consequences, and the interaction with the financial markets.

Many economists didn’t fair very much better than most of the journalists – and not just on the economics, some exhibiting a great deal of naivete about said financial markets.

2. “Judging from market reactions, each policy intervention ‘saved the day’ but made things worse from the next day on.”

I wasn’t exactly a fan of much of the policy action taken, but I think this overstates things somewhat.

Aidan Regan is among the few economists who IMHO has identified the fundamental characteristics of the various economies that make it so difficult for some to participate in a monetary union. The difficulties stem not from the nature of the union but from the nature of the economies.

I do not subscribe to the view that that there are different “varieties of capitalism”. I do, however, subscribe to the view that there are different degrees of success in in its successful, equitable and sustainable implementation. Ireland does not score high. Neither do the other countries experiencing difficulties.

These guys sure write a cracking tale on economics:
Declared a necessity for consensus around the recession-creation myth.
Demonstrated the requisite patting-themselves-on-the-back for how people of achingly similar views all came together and agreed on the underlying importance of … their own views.
And, of course, are still subtly biased. A Hindu participant might have taken care to insert more gods into the b̶i̶b̶l̶e̶ consensus economic narrative, and not just Draghi.

As befits a consensus signed by Tony Yates the word austerity is not mentioned once (not even as “necessary fiscal contraction” or some such nonsense).

An unusual omission given that the overwhelming consensus from outside the EU is that the nonrecovery from the European component of the global financial crisis is mainly down to ideologically driven policy failure.

Don’t mention the war lads.


You are being unfair – the piece is about the causes of the EZ crisis, not about the crisis response.

I have one quibble – the EZ is described, using its self-description, as a ‘monetary union’. It is essential to understand that it is not: it is just a common currency area. The distinction is at the heart of the design flaws which led to the crisis.

The relentless employment by the system’s defenders of the description ‘monetary union’ is a denial of responsibility for these design flaws, an attempt to off-load responsibility from the designers to the participants and a justification of foot-dragging in re-engineering the system.

Different voices!

The topic risks becoming academic, in the pejorative sense of the word. There can be no debate about the fact that austerity “harms the economy”, to quote Seamus Coffey. The question then was there too much or too little?

The fact that we are still borrowing money to fund current government expenditure against the background of an economy taking off on its own would suggest the appropriate answer. As to the other countries facing difficulties, it seems to me impossible to draw general conclusions for the reasons advanced by Aidan Regan, whether inside or outside the euro.



“The real culprits were the large intra-EZ capital flows that emerged in the decade before the Crisis.”


Nobody would question the lack of readiness to deal with a serious crisis.

1. Several countries had long-term economic problems before the launch of the euro: The prospect of joining the single currency did bring some temporary discipline but no structural change. Italy didn’t have a debt crisis as noted —it effectively stagnated and with a high household savings rate and the government able to fund itself domestically like Japan, it had more leeway than small economies such as Portugal, Ireland and Greece.

Spain had a 21% jobless rate in 1997; Southern Italy, known as Il Mezzogiorno (literally meaning midday), accounts for around 41% of Italy’s surface area and around 36% of the population. It has the lowest regional employment rate in the whole of Europe and the income gap with the North fell slightly between 1951 and 1975, but GDP of the Mezzogiorno has remained stable at about 60% of that of the Northern regions. GDP per capita of €16,980 in 2014 amounted to 53.7% of the level in the Centre/Northern regions and the lowest since 2000.

A global financial literacy report involving 150,000 people and published this week has Denmark, Norway and Sweden at 71%, Ireland at 55%, Italy and Portugal at 37% and 26%. The school dropout rates are also high in Spain/Portugal and Italy — clearly a big gulf in education levels.

2. Cross-border lending includes acquiring local banks and in Ireland’s case the British government’s bailouts of RBS and HBOS, saved Irish taxpayers the cost of bailouts of Ulster Bank and Bank of Scotland Ireland.

3. Irish bank data in the report appear to include foreign banks in Dublin’s offshore financial centre.

4. Rapid convergence is rare and despite huge transfers, the former East Germany is a laggard.

5. Traditional industries in Southern Europe were hit hard by competition from China, which joined the WTO in 2001 and also by the EU enlargement in 2004. Countries with a tradition of heavy engineering were attractive for German investment.

6. Greece and Italy in particular have poor FDI records and new firms demanding high level skills is good for an economy but Ireland is over-reliant on FDI and as in Israel, only part of a population may benefit.

7. There is need for comprehensive research on growth but it cannot be done by economists comparing sets of data from behind desks.

8. The difficulty of understanding growth or the lack of it can be illustrated by Ireland. There appears to be a consensus that the recovery has been export led but jobs in exporting sectors (including tourism but excluding agriculture) are 30,000 down on June 2008 and of the 130,000 added since Dec 2012, about 31,000 are in exporting sectors.

9. Colm McCarthy commented on the likelihood that the Banking Inquiry will produce a useless report because of legal restrictions.

The balance between bank confidentiality and the public interest was the subject of a landmark Supreme Court ruling on the National Irish Bank’s 1998 tax scheme. If the law officers of the State haven’t made a case for the public interest in the banking crash, and a whitewash is produced, it will be a shameful outcome.

Colm suggests that public disillusionment with the 3 traditional Irish political parties mainly results from the actions of the ECB.

However, blaming the foreigners for all the bad things while Noonan in his Budget speech invoked 1916 and effectively claimed that the record of the current government is one of the seminal achievements of the past 100 years, keeps public debate in the realm of fairytales. :mrgreen:

10. An individual country’s culture and politics continue to have central roles in the development of an economy.

Several countries have joined the euro since 2007 and none has left — some of the old folk remember the good old days of inflation and volatile currencies.

Focus on the Euro as the cause of Europe’s economic stagnation and social collapse is absurd and distracting attention from the real causes. What is needed is more intelligent analysis of Europe’s economic stagnation and social collapse, instead of simplistically placing all the blame on the Euro. The Euro hasn’t stopped Ireland growing. Why the difference with continental Europe?

Economic stagnation in Europe long predates the Euro. It will long outlast the Euro, should the worst happen and the Euro collapse (unlikely). Countries that pursue pro-growth policies are not prevented by the Euro from growing (Ireland being the prime example). The exchange rate for the Euro is currently at rock bottom against both the US dollar and the UK pound. Oil is currently $40 a barrel. Partly, but not exclusively, because of these factors, Ireland is growing at 7%-8%.. Most of Europe is growing at 1%. Given the Euro exchange rate and price of oil, any European country that is currently only growing by 1% has something seriously wrong internally and it is a cop-out for them to be blaming the Euro.

The stagnation in Europe started in the mid 1970s and has been strengthening its hold ever since. The starting-point was the cultural marxist revolution that began in Paris in 1968 and then gradually spread its malignancy throughout the continent. Up to that point Europe was an economically successful, socially cohesive and youthful continent. The political leadership in Europe at that time was dominated by Christian Democracy, which produced a series of great leaders like DeGaulle and Adenauer. Post-1968 all that was swept away. At first only the media and academia succumbed, but by the 1990s most of the political class in Europe were the ‘children of 1968′. That domination by cultural marxism would bring Europe to its knees was easily predictable.

The specific causes for Europe’s growth collapse may be summarised as follows:

(a) Absurdly high taxes to finance bloated welfare spending.

(b) The destruction of the work ethic.

(c) The destruction of the traditional family and traditional values that has produced an underclass that is permanently welfare-dependent and permanently not working (often their unemployment is disguised as invalidity).

(d) Demographic collapse. The fall in the birth rate that has resulted from the destruction of traditional marriage and the introduction of industrial abortion has resulted in a dearth of young people and population ageing that is without precedent. In Europe today there are far more old people than young people. It is a dying geriatric continent. This demographic collapse and population ageing is also necessitating rven higher welfare spending and taxation, which in turn is crippling innovation and enterprise. It is truly a vicious circle.

(e) Partly to counter the disastrous effects of (d), Europe has imported tens of millions of Islamic immigrants from North Africa, the Middle-East and the Indian sub-continent. A minority, but a significant minority, of these are hostile to everything that Europe has traditionally stood for, both in relation to culture and religion, and see their presence in Europe as a means of resuming the Islamic conquest of Europe that was attempted several centuries ago before it was repulsed. This has destroyed Europe’s social cohesion and cultural and religious identity (which is, of course, exactly what the cultural marxists intended it to do). In recent decades there has been a flood of immigrants from these countries, but that flood is now turning into a torrent.

(f) Apart from the effect on social cohesion, and cultural and religious identity, the cutural marxists’ war on religion in Europe has resulted in the abandonment of objective moral standards in every aspect of like, sexual, financial, political. Hence the unprecedented wave of corruption (Volkswagen, FIFA and the IOC being merely the latest example, but there are hundreds of others). Capitalism can only flourish under a sound moral framework, and this is now breaking down throughout Europe, as Europe’s traditional source of moral regulation, the Christian religion, is abandoned.

Not all European countries suffer equally from all these factors. Work ethic remains stronger in Germany than in France, but its demographic collapse is greater than in France. Merkel’s crazy scheme to import 1 million ‘refugees’ annually is the final nail in the coffin of its social cohesion. Expect numerous Paris-style attacks in German cities in coming years.

Ireland has been more resistant to this cultural marxism than virtually any other European country. Hence the economic growth and social cohesion. However, there are worrying signs that, under onslaught from the Dublin 4 media (which has long been in the grip of cultural marxism), Ireland’s resistance may be crumbling. One prominent liberal economist recently called for Belgium’s Molenbeek experiment to be repeated throughout rural Ireland. And, if Dublin 4 liberals get their way, it looks like marriage in Ireland will soon go the same way as in other European countries, to be followed no doubt by the introduction of an abortion free-for-all. If those happen, Ireland will suffer the same demographic collapse as the rest of Europe (although several decades later).

This weekend, as Europe’s post-1968 cultural marxist revolution has reached the zenith of its fruition, Brussels has been totally shut down, its population cowering indoors, an opinion poll in a UK paper indicates that 20% of Muslims in the UK support ISIS (which means close to 1 million jihadists in the UK alone), France is in a state of war, and football internationals in Germany have been called off. That is Europe’s real crisis, not the ‘small-beer’ technicalities of the Euro.

Europe’s best hope is that its population will soon come to the opinion that it has had enough of cultural marxism and the counter-revolution will begin. But, it is too early to say if this will happen. As for Ireland, its best hope of emerging unscathed is to observe the mistakes that other European countries have made and resolve not to repeat them here.

@ MH: Fair commentary – except for this one ….

“Traditional industries in Southern Europe were hit hard by competition from China, which joined the WTO in 2001.”

China does not do ‘competition’ – it does destruction: state-sponsored and supported. Their so-called economic summertime brought economic wintertime to the west.

This is interesting …” There is need for comprehensive research on growth …”

Its been done Michael. I believe, though I stand to be corrected, that this ‘research’ into the nature and characteristics of the rate of economic growth was undertaken, and published, by Nicholas Georgescu-Roegen (‘The Entropy Law and the Economic Process’ – 1971). See also, Robert Ayres and Benjamin Warr, ‘The Economic Growth Engine: how energy and work drive material prosperity’ – 2009). For an interesting, thoughtful and well constructed narrative about real economics try Paul Samuelson’s undergraduate text: ‘Economics’ – 1949. This would be before his ‘beautiful mind’ became seduced and sidetracked by econometric models.

I might also mention the 30 year update of ‘Limits to Growth’, but I shall refrain 🙂

Unfortunately for Neo-classical economic theory (and the associated econometric models) the research conclusions of Georgescu-Roegen and Ayres + Warr are wholly negative. Folk hear what they want to hear and …. ….


@ MH

Point 10 is probably the most important. One of the benefits of inheriting the Westminster model is a functioning, and honest, public service, especially in the area of tax collection. PR and multi-seater constituencies are our own invention. All parties are now busy hollowing out the progress made in widening the tax base.

The tendency to view Ireland a a kind of Little Green Riding Hood waylaid by the wicked ECB wolf having been forced to enter the euro forest has had quite a shelf-life but I doubt if it has much force left. To quote Tip O’Neill, all politics is local. Those who “escaped the tax net” before want to restore the status quo ante and the politicians seem most anxious to oblige them.

Greece is still in the euro; just about!


Would it not be better if we simply stuck to our own patch?

And get a grip on some simple principles; such as equality of access to health, education and minimum retirement benefits. Instead, our leaders assume that we are a nation of cynics that “know the cost of everything and the value of nothing” e.g. the puerile media commentary on the jettisoning of the commitment to universal health care, however funded.

“Absent a lender of last resort,….”

and in a common currency area you get a ‘doom loop’.

The fact of the matter is that ‘doom loop’, a pejorative term aimed at the country whose banks need liquidity support, will remain until a proper lender of last resort is installed in the Eurozone.

The ordinary citizens of each country, by and large, invest their savings in or through their own country’s banks, and their own country’s financial institutions. The quid pro quo, up to now, was that the State, via its central bank, stood behind those banks in terms of liquidity.

Are we now supposed to have entered the nether-world, whereby the new central bank only stands over the savings of citizens, where their home countries dance to its tune, whose politicians wear suits and not leather jackets, and who generally kneel before the new Central Bank alter and do penance.
All the while the same new central bank is printing trillions for the deserving rich or favoured states.

Not only have we a ‘doom loop’ in that case, but a ‘doomed loop’.


Thank you for the linked article.

Some of the comments in it are a bit rich considering the total failure of the UK Government to bring the UK deficit under control. It is projected to hit £80 billion this year, which equates to 112 billion euro, which would equate to a deficit of 9.4 billion euro in Ireland, i.e. 5-6 times Ireland’s actual likely deficit this year. That is why we up here are bracing for a further dose of austerity to be announced by Baron Ballylemon of Waterford (aka George Osborne) later this week.

However, it does make one interesting comment:

“The notion that the Irish economy might rebound so strongly would have been dismissed as fantasy only a couple of years ago.”

Au contraire. If the Economist had been following this site, it would have seen that I predicted this exactly a couple of years ago.

I see that the US Democrats have been roused to fury, not by ISIS, but by Pfizier’s deal with Amergen. Clinton, Sanders and O’Malley have all denounced it and called on Obama to block it. In contrast, the Republican candidates are (mostly at least) supportive of Pfizier and promising not to intervene.

It won’t stop the Dublin 4 media being prostrate before the Democrats for the next year and demanding that Irish Americans vote for whichever one is the Democrat nominee. While I’m generally against higher taxes, the Irish government should now consider a special one-off income levy and giving it to the campaign fund of the Republican nominee. Money well spent.

I also see that a prominent TCD professor is tweeting that 1916 leader, ex-President and ex-Taoiseach Eamon DeValera (victor in 7 Irish general elections and 2 Presidential elections) is comparable to ISIS.

Under a picture of Dev reviewing the Irish army ( I can not link to it):

“Ex terrorist leads foreign religious to bless armed forced he has stuffed with his supporters ISIS? Na.”

No wonder TCD is sinking in the global rankings.


re: 1968. ‘Flowers in your hair’ and all that!

re: Western culture being invaded. Two points, if I may.

If Europe is unable to distinguish three year refugees from Jihadists, then we have entered a very dark phase in European history.

And if Europe’s aging population had more concern for the employment of their youth than they do for their own savings, then the cause of their threatened culture might be a little more inspiring.


You seem intent on seeing only what you want to see. The level of subvention by the UK to NI is, as you know, enormous.

Would the wiki say this about the Republic?

“Health and Social Care in Northern Ireland (HSC) is the designation of the publicly funded service responsible for the administration of the public health and other social care services in Northern Ireland. The Northern Ireland Executive through its Health Department is responsible for the funding of the service. It is free of charge to all citizens of Northern Ireland and the rest of the United Kingdom. For services such as A&E, patients simply walk in, state their name and date of birth, are given treatment and then leave. Patients are unaware of costs incurred by them using the service. It is sometimes called the “NHS”, as in England, Scotland and Wales, but differs from NHS England and NHS Wales in that it provides not only health care but social care too (NHS Scotland also includes social care). In England and Wales, the NHS services only provide health care. Social services are provided by local councils. The Northern Ireland Health and Social Care Service was created by the Parliament of Northern Ireland in 1948 after the Beveridge Report.”

Some quotes from the article above – and a few comments …..

“The consensus narrative is supported by a long and growing list of economists. … … [But] this will not be good enough to put the EZ Crisis behind us and restore growth.”

I suppose if the continuation of your tenured salary depends on you not ‘understanding’ something – then you won’t. For instance, the nature and physical characteristics of that regularly mis-quoted and mis-used short-hand economic term – ‘growth’, when the correct version should be – Rate-of-Growth. I actually believe that many economists and economic commentators genuinely do not understand what Rate-of-Growth actually means. If’n I’m wrong about this, then please let me know. But, lets move on.

All economies are energy consuming physical processes and there is an absolute requirement that they should exhibit an annual, exponentially compounding, positive trend-line. However, Nature (or Blind Biddy, if you prefer) will ensure that this positive trendline will not persist – in spite of all the econometric models which prove (conclusively) to the contrary; that is, that a positive exponential trend-line, that describes a physical process, can continue indefinitly in a ‘sustainable’ manner – when those econometric models ignore the real, and uncosted, externalities of the process. In fact the econometric models mandate that the trend-line shall exhibit a continous, and positive character – or else*! You can have a consensus narrative of tens, hundreds, thousands – nay millions, but if The Physical Law say’s No! – then that’s it: QED. Pity this latter theorem is not taught in undergrad macroeconomics courses. Not to worry. Lets move on.

* “Sky will fall!” “Tanks in the street!” etc ….

” Investors became reluctant to lend …”

Actually, investors realised that the demand for credit was slowing and it was also probable that debt repayments (the interest part only – as the principal would be ‘rolled’over) would also become a problem. If the interest income falters or fails, the lenders had no incentive to undertake the time and cost of creating credit. There would be neither commissions nor bonuses! An interesting question might be – what were the prospective borrowers offering up as security for the large loans? Perhaps their representations and warranties were, on the physical side, a tad ‘sandy’: or worse, just plain virtual. Also, did the lenders actually require the prospective borrowers to make ‘true and fair’ disclosures. Seems not.

“Slowing growth produced big deficits and rapidly increasing public debt ratios.”

A slowdown in the rate of economic ‘growth’, would not of itself be so problematical – if that so-called growth had actually been real and organic, instead of being virtual and electronic (ie: financial, domestic retail and non-traded services). As I have mentioned previously, your economy will either ‘expand’ or ‘plateau’ for so long as you are producing physical stuff (a PC economy) for export and you have overseas buyers who are continually willing and able to purchase those exports. Financial, domestic retail and service-type (FIRE) economies are entirely different. They are futile, internal carosels where money circulates and virtual value accumulates – and where there is also an unseen and constant entropic economic loss (J K Galbraitht called it the “bezzle”). A FIRE economy cannot be sustained absent low interest rates and evermore inflating QE programmes: effectively its the internal circulation of virtual credit which provides the illusion of virtual wealth. Eventually, when the real ‘tide’ recedes … …. ‘Nuff said.

Just a little word in folk’s ears: It would be a cardinal mistake to attempt to comprehend the actions and motives of officers and enlisted men of a military force which is intent on, and is actively engaged in, military actions against you, your police and armed services and your state – for as long as you do not make a great effort to ‘stand-in-the-shoes’ of your

They are not mindless, terrorist thugs, or whatever. They are sentient individuals, just like you, motivated by some ideology or other – quite different from your own ideology. Maybe not your glass of tea as they say: but a Glass of Tea nonetheless. Their beliefs and behaviours may be abhorrent to you – but are your beliefs and behaviours not abhorrent to them? Just saying, like. Maybe a re-read of 1984 would be in order at this time.

I agree with Colm. Not enough attention to the design flaws in the Euro. No LOLR. No burden sharing. No deposit insurance. No fiscal backstops. No second Troy.

And with negative rates there isn’t much scope to deal with the next shock.

colm mccarthy:

Unfair, me?

Well, obviously yes but I do not think you can explain the progression of the European component of the global fiancial crisis without mentioning the feedback from the policy response.

We had a sudden stop thanks to the GFC but the policies that followed turned a three year crisis into an ongoing 8 year disaster.

This 2011 Ezra Klein post captures the spirit of
German (and EU institional) thinking on the crisis, it was a lever for political change rather than something to be addressed in itself.

The role of cynicism, ideology and political opportunism has to be included in any narrative of the “why” of the Euro zone crisis.

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