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Eurozone Governance: Deflation, Grexit 2.0 and the Second Coming of Jean‐Claude Juncker
Author(s) -
Hodson Dermot
Publication year - 2015
Publication title -
jcms: journal of common market studies
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.54
H-Index - 90
eISSN - 1468-5965
pISSN - 0021-9886
DOI - 10.1111/jcms.12263
Subject(s) - deflation , corporate governance , keynesian economics , economics , blockchain , political science , monetary economics , economic history , monetary policy , computer science , management , computer security
The global financial crisis continues to cast a long shadow over the eurozone and, in spite of an occasional break in the clouds, blue skies remain a distant prospect. As discussed in last year's review (Hodson, 2014), the eurozone's exit in 2013 from its double dip recession provided some grounds for optimism, as did the emergence of Ireland and Spain from their loan agreements with the European Union (EU) and, in the case of the former, the International Monetary Fund (IMF). The eurozone economy continued to recover in 2014 but its recovery was beset by economic and political problems. The principal economic problem was a sharp deceleration in the rate of inflation, driven mainly by falling oil prices, which left the eurozone on the cusp of deflation. The ECB stopped short of fully fledged quantitative easing in its response to falling prices – giving credence to the view that it has been behind the curve in dealing with the euro crisis (De Grauwe, 2011) – but it stepped up its purchases of asset-backed securities and experimented with negative interest rates. If this deflationary scare served as a quiet reminder that the euro crisis was not over, the fall of the Greek government in December 2014 shouted this message from the rooftops. By the year's end, Greece's Coalition of the Radical Left, Syriza, were on the verge of winning power on an anti-austerity platform. Syriza won plaudits at home for promising to put an end to the painful reforms undertaken by Greece in exchange for financial support from the EU and IMF, but its policies cast doubt on Greece's commitment to its international creditors and its fate in the eurozone. This was a dramatic turn of events for Greece, which saw long-term interest rates fall in the first half of 2015 to their lowest levels since 2009, only to see them spike in the second half of the year as the risk of Grexit (Greece's departure from the eurozone) returned (Alcidi et al., 2012; Panagiotarea, 2013).