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Fiscal Crisis in Europe or a Crisis of Distribution?

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  • Özlem Onaran
Abstract
We are in a new episode of the global crisis: the struggle to distribute the costs of the crisis. The financial speculators and corporations are relabeling the crisis as a “sovereign debt crisis” and pressurizing the governments in diverse countries ranging from Greece to Britain to cut spending to avoid taxes on their profits and wealth. In Europe the crisis laid bare the historical divergences. At the root of the problem is the neoliberal model which turned the periphery of Europe into markets for the core. The restrained policy framework, which is based on strict inflation targeting, and which lacks fiscal transfers targeting productive investments in the periphery is the main cause of the divergences. The EU’s current policies are still assuming that the problem is a lack of fiscal discipline and do not question the structural reasons behind the deficits and the “beggar my neighbor” policies of Germany. The deflationary consequences of wage cuts may turn the problem of debt to insolvency for private as well as the public sector.The crisis calls for a major change in policy framework within Europe that places regional and social cohesion at the core of policy making. This is a crisis of distribution and a reversal of inequality at the expense of labor is the only real solution.

Suggested Citation

  • Özlem Onaran, 2010. "Fiscal Crisis in Europe or a Crisis of Distribution?," Working Papers wp226, Political Economy Research Institute, University of Massachusetts at Amherst.
    • Handle: RePEc:uma:periwp:wp226
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    1. Vasily Astrov & Vladimir Gligorov & Peter Havlik & Mario Holzner & Gabor Hunya & Michael Landesmann & Sebastian Leitner & Zdenek Lukas & Anton Mihailov & Olga Pindyuk & Leon Podkaminer & Josef Pöschl , 2009. "Where Have All the Shooting Stars Gone?," wiiw Forecast Reports 4, The Vienna Institute for International Economic Studies, wiiw.
    2. Fitoussi Jean Paul & Saraceno Francesco, 2010. "Europe: How Deep Is a Crisis? Policy Responses and Structural Factors Behind Diverging Performances," Journal of Globalization and Development, De Gruyter, vol. 1(1), pages 1-19, January.
    3. Morris Goldstein, 2005. "What Might the Next Emerging-Market Financial Crisis Look Like?," Working Paper Series WP05-7, Peterson Institute for International Economics.
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    Cited by:

    1. Engelbert Stockhammer & Collin Constantine & Severin Reissl, 2020. "Explaining the Euro crisis: current account imbalances, credit booms and economic policy in different economic paradigms," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 43(2), pages 231-266, April.
    2. Đurović-Todorović Jadranka & Đorđević Marina & Vuković Marija, 2017. "Fiscal Stress Analysis in the Republic of Serbia," Economic Themes, Sciendo, vol. 55(1), pages 55-69, March.
    3. Burak Saltoðlu & Devrim Yýlmaz, 2013. "Why is it so Difficult and Complex to Solve the Euro Problem?," Working Papers 2013/02, Bogazici University, Department of Economics.
    4. Juan Pablo Mateo Tomé, 2011. "Financialization as a Theory of Crisis in a Historical Perspective: Nothing New under the Sun," Working Papers wp262, Political Economy Research Institute, University of Massachusetts at Amherst.

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