Crashed: How a Decade of Financial Crises Changed the World

by Adam Tooze

Despite this benign atmosphere, there were two problems that preoccupied experts both inside and outside the eurozone. The first was whether preexisting imbalances in intra-European trade would narrow or expand over time.5 The fear was that the lack of currency adjustment could lead to cumulative divergence as less competitive regions fell further and further behind. Second, there was the risk of asymmetric external shocks.6 A bust in tourism would hurt Greece far more than Germany. A collapse in Chinese import demand would damage Germany in a way that it would not hurt Ireland. American critics, in particular, warned that Europe’s labor markets did not have the flexibility or mobility of their American counterparts.7 And if people would not move, faced with a crisis, Europe would need a common system of benefits, taxes and spending to allow funds to flow from the more prosperous to the more hard-hit regions. Along with labor mobility, it was this backbone of social security, disability and unemployment benefits that held the gigantic diversity of the US economy from Alabama to California together. Worryingly, there was plenty of self-congratulation in Brussels in the early 2000s but little urgency about building the overarching mechanism of fiscal redistribution and burden sharing that would be necessary to see the eurozone through a recession, let alone a major financial crisis.