Sudden investor panic, not fiscal reality, newly branded Mediterranean debt intractable
Evidence
The cases of Greece, Italy, and Portugal were different insofar as they did retain high levels of public debt prior to the crisis, combined with an auxiliary set of macro-economic weaknesses. These included entrenched corruption, weak tax capacity, and fiscal opacity in Greece, and low growth, an aging population, and low productivity in Italy and Portugal. Even there, however, public debt was not regarded as an intractable problem in the 2000s—on the contrary, the adoption of the euro made borrowing costs fall sharply. Yet it suddenly became one from the investors’ perspective in a context of global panic. Faced with very different national settings, however, it should have been clear to European decision-makers that there was no one-size-fits-all solution available. So how did austerity suddenly become a magic wand for European politicians? — Arthur Borriello and Anton Jäger, The Populist Moment, 107
Categorization
- XREF: connects to: Europe’s rising debt ratios resulted from private financial crisis, not government profligacy — Mark Blyth, Austerity: The History of a Dangerous…, 149; The European debt crisis resulted from banking losses, not sovereign overspending — Mark Blyth, Austerity: The History of a Dangerous…, 40; High bank leverage turns small asset declines into instant illiquidity and insolvency. — Mark Blyth, Austerity: The History of a Dangerous…, 84 (+1 more)
Broader Connections
- Europe’s rising debt ratios resulted from private financial crisis, not government profligacy
#corroborates(0.82) — Mark Blyth, Austerity, 149 - The European debt crisis resulted from banking losses, not sovereign overspending
#corroborates(0.82) — Mark Blyth, Austerity, 40 - High bank leverage turns small asset declines into instant illiquidity and insolvency.
#expands(0.78) — Mark Blyth, Austerity, 84 - Leverage explains vulnerability but not the specific cause of a financial collapse.
#expands(0.75) — Donald MacKenzie, An Engine, Not a Camera, 1021