A ROUTE OUT OF THE EUROZONE CRISIS
The failure of austerity has been in large part due to the inability of the periphery to devalue, thus regaining competitiveness decisively. The contraction of aggregate demand has been barely offset by the narrowing of the current account deficits. In effect, peripheral countries have found themselves trapped within the Eurozone, facing austerity and high unemployment for the foreseeable future. The rising burden of sovereign debt, meanwhile, has exacerbated the prospect of insolvency and default for peripheral states. The EU response to the crisis is an example of policies that aim to protect the interests of large financial and industrial capital, only to undermine them. As recession in the periphery deepens and insolvency becomes worse, the banks of both core and periphery would face greater risks. The creditworthiness of Italy and other large countries in the Eurozone would also be affected since they carry sizeable volumes of debt and their economies have performed weakly for years. It appears that financial capital and neoliberal ideology in the Eurozone are burying themselves in a hole of their own making.
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