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EUROZONE CRISIS: CAUSES AND POLICY ALTERNATIVES

EUROZONE CRISIS: CAUSES AND POLICY ALTERNATIVES. COSTAS LAPAVITSAS SOAS JUNE 2010. A structural crisis. Causes Strategic policy options. Competitiveness: Nominal Unit Labour Costs. Productivity. In short. Very low wage growth in Germany

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EUROZONE CRISIS: CAUSES AND POLICY ALTERNATIVES

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  1. EUROZONE CRISIS:CAUSES AND POLICYALTERNATIVES COSTAS LAPAVITSAS SOAS JUNE 2010

  2. A structural crisis • Causes • Strategic policy options

  3. Competitiveness: Nominal Unit Labour Costs

  4. Productivity

  5. In short • Very low wage growth in Germany • Generally faster productivity growth in the periphery • Competitiveness gap due to pressure on labour.

  6. Current accounts, % of GDP

  7. Capital and financial accounts, net $ bn

  8. German FDI flows by region, euro, bn

  9. German ‘other’ flows by region, euro, bn

  10. Thus • German competitivess rose due to pressure on labour • Current account surpluses resulted • Surpluses turned into FDI and bank lending, heavily directed to peripheral countries • German (core) banks exposed

  11. General government gross debt

  12. Sovereign debt crisis • Rescuing banks • Collapsing tax revenue • Internal weaknesses of the state • The next phase of the crisis of 2007-9 • Revealed the underlying weaknesses of the eurozone

  13. Alternatives: Default and exit • Advantages • Bring debt back to manageable levels. • Devaluation to boost exports • Recover control of monetary policy • Dangers • Collapse of banks • Inflationary risks

  14. A broad strategy for change • Public control over banks • Control over capital account • Industrial strategy • Income redistribution • Restructuring the state • A policy to shift the balance of economic and social power against capital

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