Finance-dominated capitalism, re-distribution and the financial and economic crises: A European perspective

In this paper the euro crisis is viewed as the most recent episode of the crisis of financedominated capitalism. Therefore, two major features of finance-dominated capitalism, the increasing inequality of income distribution and the rising imbalances of current accounts, are analysed for a set of major Euro area countries. Against this background the euro crisis is examined, and it is shown that the economic policy reactions of European governments and institutions, narrowly interpreting the crisis as a sovereign debt crisis caused by irresponsible behaviour of some member country governments, are misguided and will lead to deflationary stagnation and an increasing risk of disintegration of the Euro area. For this reason, an alternative macroeconomic policy approach tackling the basic contradictions of financedominated capitalism and the deficiencies of European economic policy institutions and economic policy strategies is outlined. It is argued that, on the one hand, an institution which convincingly guarantees the public debt of Euro area member countries and, on the other hand, an expansionary macroeconomic policy approach, in particular in the current account surplus countries of the Euro area, need to be introduced.