The crisis in the Eurozone lays bare a range of problems that go way beyond the issues of Greek debt or political paralysis at the European level. It is often discussed as a crisis of European integration or a crisis of national economies within Europe.
Critical political economy stands in the tradition of classical political economy. It analyses the economy as part of society and provides a framework for an integrative analysis of the economy and political processes. For this reason, it can be considered a disciplinary perspective. At the core of a critical political economy, there is a class-based framework for the analysis of society, which aims at contributing to the struggles and overcoming specific historical forms of capitalism such as the current neo-liberal European mode of production.
It is obvious that the current economic policy framework of the Euro area is inappropriate to deal with the current requirements. In fact, the current policy framework and the stance of the policies applied have even reinforced current account imbalances through different channels.
First, they have been unable to prevent significant inflation differentials to emerge within the Euro area, mainly by undermining the conditions for effective wage bargaining conditions as a main tool for this.
Second, they have not provided the appropriate tools for domestic demand management to adjust the actual growth rate of each country towards the BPCGR [balance of payments constrained growth rate], mainly by applying a ‘one size fits all’ policy with respect to government budget balances and government debt in the context of the SGP [Stability and Growth Pact].
Third, due to the lack of any consistent industrial and development strategy for the Euro area as a whole and for the catching-up countries in particular, ensuring that capital inflows into these countries support long-run sustainable growth, they have not provided any effective policy tools to adjust the BPCGR of the high-growth current account deficit countries towards the respective growth rates.
There should be changes in the objectives of the ECB to include that of the external value of the currency, and interest rates would have to be set with regard to their effects on the exchange value of the euro. The target exchange rate would be set by the Council of Ministers of the Eurogroup, and the ECB would be required to support that policy [through its interest rate policy and through interventions in the foreign exchange markets].
The objectives of the ECB would have to be changed to include that of support of the external value of the currency. Interest rates would have to be set with regard to their effects on the exchange value of the euro. It is very important for the EMU to formulate an official exchange rate policy and abide by it. The achievement of full employment without inflationary pressures should be the ultimate objective.
We might be looking for an out within the next two years, but every political change in Europe will affect us whether we are in or out.