Crashed: How a Decade of Financial Crises Changed the World

by Adam Tooze

Portugal the economic recovery was slower. Unlike Spain, it had borne the brunt of a full-blown troika program. In 2015 its youth unemployment rate was just shy of 60 percent and ...

The PàF center-right coalition headed by Pedro Passos Coelho, who had taken office in June 2011, had fought the long fight for eurozone stabilization. When the election campaign began it had seemed as though PàF would be roundly defeated. But the turmoil in Greece and th...

On October 4, 2015, Coelho and the PàF saw their vote plunge relative to their 2011 result by 12 percent. But at 38.6 percent they still came in far ahead of the Socialists at 32.3 percent. With relief, President Cavaco Silva, a conservative financial economist, turned to Coelho to make the first attempt to form a new governm...

The Socialists, though their electoral performance had been disappointing, had other options. If they were willing to form an alliance with the radical Left Bloc, Portugal’s equivalent of Syriza, and the ex-Communist Unitary Democratic Coalition, they had a majority. Pulling off this alignment would require a break with the taboos of the cold ...

As was true in Germany for the SPD and Die Linke, the Portuguese Socialists had hitherto refused to deal with the ex-Communists. But after years of austerity, PS leader António Costa took the plunge and ent...

How would President Silva respond? It was for him a profound dilemma. As he stated with remarkable frankness: “In 40 years of democracy,” the Portuguese governments had never depended on the radical Left parties, which questioned the Lisbon Treaty, the EU’s budgetary treaty, the b...

As the president made clear, as far as he was concerned, the right to govern in Portugal depended on a commitment to those institutions and the values they embodied. And in 2015 there was a further correlate. Portugal must qu...

It was Draghi’s bond buying that had given Portugal shelter from the Greek storm. Eligibility for inclusion in the ECB program, in turn, depended, by fiat of the ECB, on the rating of the international credit agencies. The best-known ratings agencies—Fitch, Moody’s and Standard & Poor’s—had all downgraded Portugal to junk in 2011. The only exception was DBRS, the least well known of the international ratings age...

Unsurprisingly after the events in Greece, Angela Merkel was not shy about letting it be known that she agreed. The prospect of a left-wing anti-austerity coalition in Lisbon was “very negative.”

Instead, in a constitutionally dubious arrangement, Silva made Costa’s appointment conditional on promises.89 The government must respect Portugal’s commitments to the European Union’s stability pact, whereby all eurozone members were required to reduce budget deficits to below 3 percent of GDP. It must remain committed to NATO. It must continue with the restructuring of Portugal’s ailing banking system as previously planned. It must limit the role of trade unions in deciding government policy and respect the existing balance between employers and labor. Schäuble had announced that elections should not change economic policy. Portugal’s president clearly agreed.

Watched over by the president, the creditor governments of the EU, the ECB, the bond-rating agencies and the bond markets, the Left coalition took office. What it could do with political power, whether Portuguese democracy within the frame of the eurozone was more than a matter of extend-and-pretend, would depend on its ability to bend the constraints imposed upon it. At least, unlike Greece, the arithmetic of Portugal’s debts did not condemn it from the start.

Against left-wing governments, in weak and dependent members of the eurozone, the tactics of financial pressure worked. The Eurogroup’s project of political and economic discipline prevailed. For all their bravado and the genuine excitement they awakened both at home and abroad, the governments of Tsipras and Costa did not promise revolution.

They promised national autonomy and self-respect, and, above all, social improvement. This made them vulnerable to the threat of immediate economic suffocation. After all, what good was a small increment to your pension or shorter waiting lists for social housing if a cap on ECB liquidity assistance left you unable to get cash out of the bank?

But the challenge to the status quo in the EU did not come only from the Left. Overshadowed by the struggles with Greece, the nationalist wave that had made itself felt in the European parliamentary election of May 2014 was gathering force. In 2014 it was...

The following year, the British Conservative Party unexpectedly won an outright majority in the May 2015 general election. The British Conservatives were a broad church. David Cameron had led the party out of the wilderness of Opposition along the path of cultural modernization. But the right wing of the party belonged squarely in the n...

Further to the right lurked the mavericks of the anti-EU UKIP, excluded from Westminster, but the winners of ...

A few weeks after the British Conservatives’ victory, the Law and Justice party won the Polish presidency on a ticket of overt nationalism and cultural conservatism.91 They too were nationalists hostile to the int...

Over the summer and autumn of 2015, the drama of the Syrian refugee crisis and Angela Merkel’s well-intentioned but cack-handed response fed the nationalist flames. Germany was not just imperious. It was opening the doors of an alien invasion. It was a double gift for nationalist demagogues. By the autumn of 2015, Law and...

Together, Poland and the UK accounted for 100 million citizens of the EU, 20 percent of the total, with governments pandering to the most skeptical Europhobic elements. It was unsettlin...

Historically, the UK was America’s preeminent ally in Europe, both in NATO and as the anchor of the tr...

Since the early 2000s Poland had been in the van of Donald Rumsfeld’s “new Europe.” It was the East European state most closely aligne...

Earlier in the year, Syriza had tried in vain to gain leverage in Europe by interesting global actors in its predicament. The United States, China and Russia had all declined. They would not meddle in Germany’s sphere of interest. Poland and the UK pos...

But unlike in the case of Wall Street, tightening the regulation of British banks is not the same as curbing the City of London. The City is not first and foremost a national financial center. Its main business is global.

How could London regain its edge? In the wake of the crisis, the major competitors of America’s global banks were not European but Asian.

In making these moves the Bank of England explicitly cited the model of the eurodollar markets of the 1970s. The difference, of course, was that in facilitating the emergence of the eurodollar market, London had enabled global finance to escape government regulation.

It was these tensions that unloaded in December 2011 in the disastrous clash between the UK and the rest of the EU over the fiscal compact. Tellingly, Cameron came to the do-or-die eurozone talks in Brussels with one key agenda item, to protect the City of London.

German finance minister Schäuble

In the spring of 2017 the world held its breath. The euro gyrated. European political uncertainty was the key “tail risk” for fund managers. The ECB’s bond buying was the one major source of stability. However unlikely the scenario, if Le Pen were to break through in France, it was hard to see how even the ECB’s largest program could have avoided another sovereign debt crisis.

That sunny Friday morning outside the clubhouse in Turnberry Ayrshire, the cameras were trained on an American businessman holding forth enthusiastically about the referendum result89: “Basically they took back their country,” he declared to the skeptical Scottish audience.