The sovereign debt narrative mislabeled private-debt crises as state profligacy.

Evidence

The euro, in this picture, was supposed to be the dose of steroids. … Both Northern and Southern elites were quick to sell the crisis as one of “sovereign debt.” This was allegedly caused by the profligacy of specific states offensively grouped under the “PIIGS” label (Portugal, Ireland, Italy, Greece, Spain). For countries like Ireland and Spain, the diagnosis was blatantly erroneous. In 2007, Spain’s net debt-to-GDP ratio was 26 percent, which made it one of the “best in class” among European countries. Private debt had become public only later, through different mechanisms. First, the public finances deteriorated when the government had to rescue the small regional saving banks (cajas de ahorro) that were severely vulnerable to the bursting of the real-estate bubble. Second, the economic recession itself had an automatic impact on public accounts by lowering tax revenues and increasing welfare expenses. Third, the initial (timid) recovery plan financed by the socialist government accentuated the deficit. As a result, Spanish public finances endured a spectacular deterioration. The country’s total public and private external debt, the figure that really matters in determining a country’s solvency, had reached 170 percent of GDP by the end of 2012, making it particularly vulnerable to speculation. Looking only at the Spanish (and Irish) case, the focus on state profligacy sounded whimsical. — Arthur Borriello and Anton Jäger, The Populist Moment, 106

Categorization

• QUESTION: Spain’s low public debt yet huge private/external debt suggests the crisis narrative was constructed; worth probing how far this reframing was deliberate.
• XREF: connects to: Euro-zone crisis management explicitly treated elections as threatening sound policy. — Arthur Borriello and Anton Jäger, The Populist Moment: The Left After the…, 115; The Eurozone crisis was wrongly blamed on sovereign fiscal profligacy — Mark Blyth, Austerity: The History of a Dangerous…, 152; The sovereign debt crisis is a transmuted and camouflaged banking crisis — Mark Blyth, Austerity: The History of a Dangerous…, 35 (+9 more)

Broader Connections

• The Eurozone crisis was wrongly blamed on sovereign fiscal profligacy #corroborates (0.95) — Mark Blyth, Austerity, 152
• The European debt crisis resulted from banking losses, not sovereign overspending #corroborates (0.92) — Mark Blyth, Austerity, 40
• The sovereign debt crisis is a transmuted and camouflaged banking crisis #expands (0.90) — Mark Blyth, Austerity, 35
• Crisis rescue shifted private sector insolvency onto sovereign state accounts #expands (0.90) — Philip Mirowski, Never Let a Serious Crisis Go to Waste, 49
• Neoliberalism’s crisis strategy redirected blame from banks onto state debt #expands (0.88) — Philip Mirowski, Never Let a Serious Crisis Go to Waste, 475
• Rogoff’s ‘all crises are alike’ discourse shifted blame from private sector to sovereign debt #expands (0.88) — Philip Mirowski, Never Let a Serious Crisis Go to Waste, 475
• Debt politics functions as a morality play shifting blame from banks to the state #corroborates (0.85) — Mark Blyth, Austerity, 56
• Pro-austerity economists refused to analyze the financial-crisis origins of state debt #corroborates (0.85) — Mark Blyth, Austerity, 470
• States were complicit but did not cause the European debt crisis #qualifies (0.82) — Mark Blyth, Austerity, 199
• Banking crises precede sovereign debt crises in 80 percent of cases #corroborates (0.80) — Mark Blyth, Austerity, 206