The euro crisis: undetected by conventional economics, favoured by nationally focused polity

This article interprets the initial success of the launch of the euro and its ‘muddling through’ since the outbreak of the Greek sovereign debt crisis. Two interrelated processes interacted to deliver a quite complex idiosyncratic systemic crisis. First, new classical macroeconomics had diffused the belief that market economies are structurally stable, money is neutral, financial markets are efficient and that the only culprit is public finance. The euro crisis was thus inaccurately diagnosed. Second, in the political arena, monetary integration has been used by many governments as a justification for liberalisation reforms opposed by various domestic social groups. At the European level, most governments have been defending national interests, whereas the European Commission and European Parliament had lost most of their expertise and legitimacy in defending a common community in line euro ambitions. Crisis resolution calls for leadership from a key collective actor, to return coherence to the eurozone’s institutional setting.