Euro Crises and Euro Scams: Trade not Debt and Deficits Tell the Tale

The euro crisis was typically presented as excessive fiscal deficits leading to the accumulation of unsustainable public debts. This diagnosis applied most notably in Greece and Italy, but also Portugal and Spain. Implicit in much of the analysis, and occasionally explicit, was the suggestion that these countries spent beyond their means and abandoned a commitment to international competitiveness. This article demonstrates that the German export-led growth strategy generated large trade and current account deficits throughout the euro zone in the 2000s. When the global financial crisis struck the continent in 2008 these deficits proved unsustainable. With the exception of Greece neither public debts nor fiscal deficits represented a major problem among euro zone countries prior to 2008. The analysis leads to measures that could have avoid the crisis of sovereign debt entirely, as well as corrected the unsustainable trade balances in the euro zone. These policies were not seriously considered, with the result that the future of the common currency was in doubt.