The Power of Ordoliberalism in the Eurozone Crisis Management

Abstract

It is one of the great misnomers to call the present Eurozone debt crisis a sovereign debt crisis. The reality is that the European sovereign debt crisis started when the debt of the private banking sector was transformed into public sector debt via bail-outs. Blythe and Newmann refer to this discursive shift as the ‘greatest swindle of modern times perpetrated on the European Public by their governments on behalf of their banks’ (2011: 2). If we compare public debt as a percentage of GDP with private debt in percentage of income in 2008 in those supposedly problem sovereign debt countries, we find that they in fact had a slightly better record than Germany. Ireland had a public debt as a percentage of GDP in 2008 of 44 per cent (private debt in percentage of income 197 per cent); Spain’s public debt was 41 per cent of GDP (private debt 128 per cent); Portugal’s public debt was 66 per cent (private debt 135 per cent); Germany’s public debt was 66 per cent (private debt 89 per cent). The accumulation of private debt in Spain and Ireland had to do with the massive build-up of private household debt as a result of the housing bubble. House prices rose in Spain by 120 per cent in the period 1997–2008, which was the highest in the Eurozone. The only exception to the accumulation of huge private debt levels was Greece. Greece’s public debt was a high of 97 per cent in 2008 (increasing to 115 per cent in 2009) versus 42 per cent of private debt (Dodd, 2010, cited from Eurostats).