 Lessons from the eurozone crisis
Dr Constantinos Alexiou
Senior Lecturer in Economics
Lessons from the
Eurozone
crisis
T
he economic crisis has ushered
in an era of economic stagnation
and social misery across much
of the EU region. As a result, governments
in the recession-stricken Eurozone
struggled to find viable ways out of what
is perceived to be the worst economic
predicament since the establishment of
the EU. The finger of blame is pointed
by many at the reckless spending by the
relatively poorer Mediterranean countries.
But, the economic collapses of both
Ireland and Iceland were down to failures
of their national banks.
The widespread dogmatic adoption of
neoliberal attitudes towards banks by the
contemporary gurus of policymaking in
both the EU and US, had a devastating
impact on the respective economies.
Speculative behaviour that had been
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nurtured for many decades in the womb
of the financial system, precipitated the
collapse of the banking system; whilst at
the same time irresponsible governments
were expected to bail out the banks using
taxpayers money.
In the aftermath of the financial crisis, the
fundamental weaknesses of the structure of
the Economic and Monetary Union (EMU)
experiment were exposed. Policymakers
in the EU aided and abetted by global
economic facilitators, otherwise known as
the IMF, desperately tried to conjure up
policies which were structural in nature, to
deal with the crippling effects of recession.
The novel austerity packages offered to
Portugal, Italy, Ireland, Greece and Spain,
could be regarded as a set of hastily
constructed rules that cut wages in both
the public and private sectors considerably,
governance and risk management that
has resulted after lengthy periods of
unscrupulous toxic trading and rapid
growth. For many commentators,
regulation in the financial system has
been conspicuous by its absence, whilst
for others the existing regulatory system
has simply failed to deliver. Either way, a
regulatory mechanism should always be
in place to ensure that any forthcoming
‘ill-driven’ practices are kept at bay and
effectively neutralised. However, the
question that still begs an answer is ‘who
regulates the regulators?’ Resolving this
question will settle the debate about the
significance of stringent and anti-fragile
regulation.
alongside a reassessment of labour
rights, thereby undermining the existing
democratic processes in the respective
countries. Observers, both inside and
outside the troubled countries, have argued
that the bailout packages were destined
to fail, weakening further the already
decimated economies. Paradoxically, the
new policies call for more austerity and
more misery for the people of the troubled
countries.
History tells us, that after a war or a
natural disaster people learn from their
mistakes. If there is a lesson to be learnt
from the on-going economic crisis, it is
with regard to the activities carried out
by the banking sector. The banks must
stop financing Ponzi (pyramid selling)
type schemes and instead focus on
financing productive investment. It is well
documented that the bulk of the financial
sector’s market activities are bound up
by speculative bubbles. When society is
unable to resist the temptation of instant
wealth, then the accumulation of debt is
inevitable which in turn leads to a crash.
British economist John Maynard Keynes
articulately argued that mediocre growth,
financial instability and unemployment are
caused by the fetish for liquidity.
What the pundits are failing to recognise
is the dramatic failure of corporate
In all likelihood, economic instability in
conjunction with global trends will play an
“The question that still
begs an answer is who
regulates the regulators?”
instrumental role in affecting businesses
in the long-term. The world is becoming
increasingly more intricate and the
inherent frailty of the emerging business
environment creates new challenges for all
players in the market system.
Antiquated, gut-instinct management
approaches are not sustainable and need
to be superseded by fresh ideas tailored to
achieve efficiency and flexibility in a highly
volatile environment. Adaptation is the key
to success. In the words of British biologist
Charles Darwin: “it is not the strongest
species that survive, nor the most intelligent,
but the ones most responsive to change.” MF
For further information please contact the
author at constantinos.alexiou@cranfield.ac.uk
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