A Mere Consequence of Sequence? Time, Debt, and the Alchemy of Finance in the Euro Crisis -- 2009-2013

Istvan Adorjan, University of Chicago

My paper seeks to explain the puzzle of counterproductive policy responses by the key network of EU actors (the European Council, the European Commission, and the European Central Bank) to the so-called sovereign debt contagion in the Eurozone in the aftermath of the 2008 global financial crisis, which extended the duration and intensity of the crisis. The threat of a sovereign debt crisis spiraling out of control elicited a number of austerity measures and legal-regulatory reforms in the architecture of the European Union, but while these also exposed retroactively the structural flaws of the Euro Area (the EMU) as it had been conceived a decade earlier, they nevertheless failed to address the mechanisms responsible for relaying the systemic instability of essentially private financial flows to the fiscal arena. The sequence of sovereign debt defaults starting with Greece in 2009 allowed the EU institutions to frame the Euro Area crisis primarily in terms of public finances, neglecting the decisive role of the European banking sector in triggering and exacerbating this. Instead of adopting a new Keynesian critical perspective, which would merely lay bare this metamorphosis of the banking crisis into a sovereign debt crisis, or taking the retrospective acknowledgments of policy mistakes by EU actors I have interviewed at face value, I argue that the suppression of the banks’ role of precipitating the threat of sovereign default was in fact indispensable given the importance of the financial sector in the political economy of the Euro Area.

No extended abstract or paper available

 Presented in Session 211. Rise and Trajectories of Financial Capital