In 2010, the crisis exposed the flaws of the single currency: the zone did not monitor either private debts or external deficits that were accumulating in some of its members. Yet, the states had to come to the aid of banks that were collapsing due to uncollectible private debts. The zone also lacked tools to assist countries in budgetary crisis, resulting in a contagion of distrust that nearly swept away the euro.
New tools. Since then, its architecture has been modified to correct several of these defects. First, the European Stability Mechanism (ESM), created in 2012 and potentially equipped with 700 billion euros to aid countries in difficulty, provided they agree to be put under supervision. However, the ESM can only intervene late, when the situation is already deteriorated. And the conditions imposed on the aided country are not subject to any control by the European Parliament. Simultaneously, a banking union was launched in 2012 to avoid the vicious circle between bank difficulties and state difficulties that had almost swept away the euro. It is now the European Central Bank (ECB) that ensures that the largest banks do not take excessive risks. And if a problem still arises, European leaders will decide what should be done.
A European fund has also been created, financed by banks, to bail them out without involving taxpayers. However, it remains insufficient for a serious crisis, and the decision-making mechanism, which is complex, has not yet been tested. Finally, the ECB has massively purchased public and private debt securities to lower the interest rates at which companies and states finance themselves. This has injected thousands of billions of euros into the zone. The total value of securities held by the ECB represents 40% of the euro area’s gross domestic product (GDP), including 25% of GDP in public debt securities. This means that this debt has been mutualized without being explicitly stated.
Deficiencies. The eurozone has been saved, but it is not out of trouble. The ECB’s policy has indeed enriched bankers and speculators and pushed asset prices (stocks, real estate) higher, increasing the wealth of the richest. Meanwhile, restrictive budgetary policies that are still in place, aimed at reducing public spending, and labor market policies based on job flexibility and reducing labor costs are degrading the living conditions of middle and lower classes.
Guillaume Duval, Alternatives économiques
