On a Hidden Aspect of the Credibility Crisis in the European Union

The financial and economic crisis after year 2007 had an asymmetric impact on the countries of the European Union. While some reasons for this asymmetries are identified, some others remain far from being clearly and openly expressed. In particular, it is not quite obvious why some countries experienced a sharp decline in their credibility in the financial markets. This credibility crisis is commonly explained with poor fiscal stance and high public deficits in the respective countries; Portugal, Ireland, Italy, Greece and Spain (PIIGS). The problem with this explanation is that high public debts and deficits are not specific only to these countries. Although fiscal stance and public debt are important these countries which were hit most experienced a broader problem of foreign debt crisis which mirrors the situation of the private sector, too. This characteristic of the crisis is blurred by the membership of the countries in the euro zone. When we accept the diagnosis a question about positive policy actions arises. Unfortunately, fiscal consolidation in the most problematic countries is neither an optimum solution nor a real possibility. Countries which are in the euro zone are unable to use individual monetary and exchange rate policy which seems otherwise a proper instrument in their situation. Moreover, the economic policy of the European Union in the face of the crisis is erratic, in breach of important rules which were supposed to govern economic life in the UE and the euro zone and it does not address in a perspective manner the specific problems encountered by these countries which experience most strain. The future looks misty and dark.