The Eurozone crisis and potential future scenarios

Neo-liberal restructuring in Europe has come up against its internal contradictions. It has reached its limits. Germany’s export strategy, based on cuts in wages and working conditions, cannot be replicated by everybody else. If one country has such a drastic surplus in trade, others must absorb these products. Even more severely, the Eurozone crisis has highlighted the unevenness of the European political economy. Super-profits reaped in core countries such as Germany were re-invested in state bonds of peripheral countries only in order to purchase yet more goods from the core. This circle could not go on forever and there is no potential solution from within neo-liberalism able to cope with this crisis (see Europe and the limits of neo-liberalism).

Europe and neo-liberalism

From the mid-1980s onwards, the European Union (EU) pursued a path of neo-liberal restructuring internally around the Internal Market programme and Economic and Monetary Union as well as externally in several enlargement rounds and its Global Europe free trade strategy (Bieler 2012). The Eurozone crisis, however, has shown the internal contradictions of this strategy. Neo-liberal restructuring in Europe has reached its limits.

In 1985,the EU embarked upon a radical strategy of neo-liberal restructuring. The Internal Market programme, institutionalised in the Single European Act of 1987, established the free movement of goods, services, capital and people by deregulating and liberalising national economies. Economic and Monetary Union (EMU) as part of the Treaty of Maastricht in 1991 further consolidated the neo-liberal course. In order to qualify for the Euro, countries had to comply with the convergence criteria including strict limits on budget deficits and national debt levels leading to a range of austerity budgets across Europe during the 1990s. The European Central Bank (ECB), in turn, was given the primary task of safe-guarding price stability, with a focus on economic growth being relegated to a secondary place at best. The Social Dimension, initially perceived by many as a potential counter-weight to economic restructuring, turned into an instrument of market building.