German Financialization and the Eurozone Crisis

Nina Eichacker

Nina Eichacker is a lecturer in economics at Bentley University. This blog post summarizes her recent Political Economy Research Institute (PERI) working paper “German Financialization, the Global Financial Crisis, and the Eurozone Crisis.” Her previous blog post, on financial liberalization and Iceland’s financial crisis, is available here.

Many studies of the Eurozone crisis focus on peripheral European states’ current account deficits, or German neo-mercantilist policies that promoted export surpluses. However, German financialization and input on the eurozone’s financial architecture promoted deficits, increased systemic risk, and facilitated the onset of Europe’s subsequent crises.

Increasing German financial sector competition encouraged German banks’ increasing securitization and participation in global capital markets. Regional liberalization created new marketplaces for German finance and increased crisis risk as current accounts diverged between Europe’s core and periphery. After the global financial crisis of 2008, German losses on international securitized assets prompted retrenchment of lending, paving the way for the eurozone’s sovereign debt crisis. Rethinking how financial liberalization facilitated German and European financial crises may prevent the eurozone from repeating these performances in the future.

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From G20 to Labour20

Erinç Yeldan

The G20 Summit has met, convened, and dispersed for the next year after a massive show in the tourist heart of Turkey, Antalya.  The meetings had convened under the shadow of massive social exclusion and terror overrunning the global political economy. the G20 communiqué that had been released on November 15 was little more than a simple wish-list for a stable and participatory global economy—the main motto of Turkey’s presidency over 2015.

But to billions of working families across the globe, there was more than the standard wish-list of the G20 communiqué: the Labour20 (L20). The L20 was founded by the International Trade Union Confederation (ITUC) and the OECD’s Trade Union Advisory Committee (TUAC) and was convened with the call coming from Turkish hosts, the Confederation of Turkish Trade Unions (Türk-Iş), Confederation of Progressive Trade Unions of Turkey (DISK), and Confederation of Turkish Right Trade Unions (Hak-Iş).

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There’s Plenty of Money for Students—And Other Poor South Africans—If We Reprioritise

Patrick Bond

How to make good on the 0% university fee increase committed by President Jacob Zuma after such courageous student protests last week [in October 2015] at Union Buildings, ANC headquarters and parliament?

South Africa’s R1.451 trillion state budget for 2016-17 must expand or be rejigged by just 0.3%. True, in addition to the immediate R4.2 billion shortfall, much larger sums will be needed to subsidise free tertiary education for those unable to pay, as well as to end out-sourcing of university workers.

So where can the state find the funds? According to some, Zuma’s government is just too broke. As my Wits School of Governance colleague Graeme Bloch claimed last week in The Conversation (albeit without supporting data), “There are many problems for the government, including the state of the world economy, which ensures that there is not enough money” for free university education.

But if a 2012 government commission set up by Minister Blade Nzimande (and hidden away since) as well as even the conservative SA Institute for Race Relations agree that free tertiary education is affordable, why the resistance?

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The Disaster of Greek Austerity, Part 2

Evita Nolka

Evita Nolka is a Greek political scientist, holder of a MSc. in Strategic Studies and International Politics from the University of Macedonia. This is the concluding part of a two-part series. Part 1 is available here.

U-Turn by SYRIZA and Popular Disillusionment

Originally elected in January 2015 on a vehement anti-austerity platform, the Greek Prime Minister Alexis Tsipras has made an unprecedented U-turn. He has ignored the popular outcry against austerity – loudly expressed in a referendum on July 5 – and has given in to the creditors’ demands. In August a new bailout was signed and approved, including fresh austerity but also neo-colonial restrictions on national sovereignty giving the right to creditors to monitor the Greek government.

And yet, Tsipras won a new election on September 20, again forming a government. The result seemed to vindicate his capitulation. It appears that Greek voters, confronted with a narrative presenting the new agreement as inescapable, opted to give the governing party a second chance.

“This wasn’t a vote of hope but a vote for the “lesser evil” within the limits of a “nothing can really change” mentality,” says Costas from Patra.

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Considering a “Federalized” Unemployment Insurance Scheme for Europe

Leila Davis and Harry Konstantinidis

Leila Davis is an assistant professor of economics at Middlebury College. Harry Konstantinidis is an assistant professor of economics at the University of Massachusetts-Boston. Their paper “A Proposal for a Federalized Unemployment Insurance Mechanism for Europe,” with Yorghos Tripodis, is available here.

The length and depth of the ongoing Eurozone crisis highlights design failures in the monetary union’s architecture, and points to the need for concrete analyses of institutions and policies that can contribute to a more stable EMU architecture. In fact, discussions aiming to resolve the Greek crisis within the euro cannot be limited to the current debt crisis, but must also explore policies at the Eurozone level that may mitigate weaknesses inherent in EMU structure.

One direction for reform emphasizes fiscal transfers across Eurozone countries, which have received growing attention in both academic and policy circles over recent months. In fact, during the summer of 2015, the IMF explicitly recommended direct fiscal transfers to the Greek budget to help quell the Greek debt crisis. The logic for fiscal transfers in a monetary union is well known: because countries in monetary unions have neither independent monetary authority nor exchange rate control, they have limited policy options with which to respond to domestic shocks. In the EMU context, the Stability and Growth Pact also limits the use of fiscal policy during downturns.

In a recent working paper (coauthored with Yorghos Tripodis) we examine a “federalized” EMU-wide unemployment insurance (UI) system, whereby basic unemployment benefits are provided at the Eurozone—rather than the domestic—level, is one policy scheme that may contribute to a more stable EMU-level architecture. Such a scheme is in the spirit of the U.S. system, in which federally funded unemployment insurance reduces pressure on individual states’ budgets following asymmetric shocks. UI, which supports both household incomes and aggregate demand during downturns, is a key component of fiscal crisis management.

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Lessons from Iceland’s Financial Crisis

Nina Eichacker

Nina Eichacker is a lecturer in economics at Bentley University. This blog post summarizes her recent Political Economy Research Institute (PERI) working paper “Too Good to Be True: What the Icelandic Crisis Revealed about Global Finance.”

Iceland’s 2008 financial crisis should have been foreseen. By 2006, banking and economic data described an overheating financial sector and aggregate economy, and analyses by private and public researchers had reports describing those trends and their likely consequences. However, many were still surprised by the onset of Iceland’s large financial crisis. These events point to the dominance of neoliberal theories about the necessity of financial liberalization, and an assumption that a northern European country would have the institutional sophistication to avoid financial crises like those observed in developing countries that rapidly liberalize their financial sectors. A wider adherence to Keynesian and Minskyian theories of financial crisis would have helped predict Iceland’s crisis, and future such episodes.

One factor that contributed to the Icelandic financial crisis was the lack of financial market transparency. Organizations that could have reported on the conditions of the Icelandic financial marketplace and the state of the Icelandic economy did not. Despite positive reports by Frederic Mishkin and others citing Icelandic institutions’ integrity, (Mishkin and Herbertsson, 2006), the Icelandic state threatened to defund public Icelandic institutions and agencies that published reports contradicting the narrative of a robust financial infrastructure and growth. Iceland’s Chamber of Commerce paid economists like Mishkin hundreds of thousands of dollars to write favorable reports about Iceland’s financial sector and overall economic growth prospects. (Wade and Sigurgeirsdottir, 2010) The Icelandic news media consistently underpublished reports critical of the Icelandic financial sector, while publishing many stories that praised Iceland’s big three banks (Andersen, 2011). Sigurjonsson (2011) identified the root cause of this disparity as the cross-ownership of media company shares by Icelandic financial actors and institutions and financial corporation shares by Icelandic media institutions. The interconnectedness of these industries created conflicts of interest for all involved. The under production of criticism, and the over production of praise for Iceland’s banks skewed public understanding of the nature of Icelandic banks’ activity.

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What We’re Writing, What We’re Reading

What We’re Writing

Patrick Bond, South African Student Protests

Brandon M. Taylor and James K. Boyce, Air Pollution Co-Benefits Associated with the Healthy Climate and Family Security Act of 2014

Sunita Narain, Who Can Touch Diesel?

What We’re Reading

Polly Cleveland, Dead Empires: How China May Overtake the U.S.

Nina Eichacker, German Financialization, the Global Financial Crisis, and the Eurozone Crisis

Sabri Öncü, People’s Quantitative Easing: A Jeremy Corbyn Proposal

Prabhat Patnaik, The Slogan of “Make in India”

Robert Pollin, The New Green Economy: Think We Can’t Stabilize the Climate While Fostering Growth? Think Again

Triple Crisis welcomes your comments. Please share your thoughts below.

Triple Crisis is published by


The Disaster of Greek Austerity, Part 1

Evita Nolka

Evita Nolka is a Greek political scientist, holder of a MSc. in Strategic Studies and International Politics from the University of Macedonia. Her current research interests include the European financial crisis in the Mediterranean region.

Sticking with Austerity

For six years now Greece has lived under unprecedented austerity policies demanded by its lenders and accepted by a succession of governments. The social and political reality created by austerity was sharply shown by two events that occurred on the same day in October.

First, a report on poverty and social exclusion in Greece was released by Eurostat, the European statistical service, indicating that, in 2014, 22.1% of the population lived in conditions of poverty, 21.5% were severely materially deprived, while 17.2% lived in families with very low work intensity. Altogether, 36% of the population faced one or more of these terrible conditions. The percentage was 7.9% higher than in 2008.

Second, the Greek parliament approved a new piece of legislation imposing further austerity measures as demanded by its creditors – primarily the EU and the IMF – to meet the terms of Greece’s recent, third, bailout agreement. The new package involves cutting 14.32bn euros of public spending, while raising 14.09bn euros in taxes over the next five years. The measures will affect primarily private-owned businesses, homeowners and employees close to retirement.

Austerity policies were first adopted in 2010 as a “solution” to the economic crisis that burst out in 2009-10. Severe cuts in public spending, deep reductions in wages and pensions, enormous tax increases, and a stripping back of labor protections have sought – presumably – to stabilize the economy and gain the confidence of financial markets.

In practice the measures have plunged the Greek economy into a prolonged recession that has had the disastrous social implications outlined by Eurostat. Unfortunately, the current Greek government, formed by the left-wing SYRIZA party, appears determined to keep the country on the same path.

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China’s Boost to South Cooperation

Martin Khor

China gave a big boost to South-South cooperation when its President, Xi Jinping, made two unprecedented mega pledges totalling US$5.1bil to assist other developing countries during his visit to the United States in September.

Firstly, he announced that China would set up a China South-South Climate Cooperation Fund to provide RMB20bil or US$3.1bil to help developing countries tackle climate change.

This announcement was made at the White House at a media conference with U.S. President Barrack Obama.

Secondly, at the United Nations Development Summit, Xi said China would set up another fund with initial spending of US$2bil for South-South cooperation and to aid developing countries to implement the post-2015 Development Agenda.

The sheer size of the pledges gives a big political weight to the Chinese contribution. President Xi’s initiatives have the feel of a “game changer” in international relations.

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