Europe as a giant subprime CDO?

As I discussed in an earlier post, Vicente Navarro lays an important part of the blame for the European debt crisis on the right-wing regimes in power in Greece, Spain, Portugal, and Ireland in the aftermath of World War II. While the rest of Europe was building modern welfare states –complete with tax regimes capable of financing those social expenditures– Greece, Spain, Portugal, and Ireland were lagging behind, on both the spending and the revenue side.

In an excellent post at Triple Crisis, Brown University political scientist Mark Blyth focuses on some more recent history that also bears strongly on the current crisis. Blyth notes:

…what we refer to today as the ‘European Sovereign Debt Crisis’ began as a private sector financial crisis back in 2008 … Fearing a financial Armageddon, governments transformed private bank debt into public debt via bailouts, lost revenues, lower growth, higher transfers, and yawning deficits. The unavoidable result across the European continent was a massive increase in government debt.

He continues:

While painting this as a story of fiscal irresponsibility has some plausibility in the Greek case, it simply isn’t true for anyone else. The Irish and the Spanish … were, for example, considered ‘best in neoliberal class’ in terms of debts and deficits until the crisis hit. Public debt is a consequence of the financial crisis, not its cause.

The whole piece is tightly argued and well worth reading.

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