Crashed: How a Decade of Financial Crises Changed the World

by Adam Tooze

This was the basic dilemma of the eurozone debt crisis. Greece needed a write-off. The Germans were not opposed and favored haircutting the creditors. But Greece’s PASOK government did not want to pay the price for a problem in large part created by its predecessor. It wasn’t just the state’s debts that would have to be restructured but the Greek banking system too. The entire Greek social and political fabric was at stake. The French opposed a write-off and Paris had backing not just from other European debtor nations but from the ECB as well. The ECB was aghast at the prospect of a sovereign default in the eurozone. What about the risks of contagion? Surely what Greece needed was a healthy dose of financial discipline. That was a popular answer. Austerity was the medicine forced down Greek throats for years to come. But the budget adjustment required was unrealistic and its impact on the Greek economy was devastating. As restructuring was, in the end, inevitable, the question ought to have been how to make it safe, how to build a framework within which debts could be written down and losses inflicted on creditors without unleashing a general panic. The problem was that to even say this out loud was to risk triggering a run before the safety net was ready. While engaging in extend-and-pretend and denying the need for restructuring, it was hard to generate momentum for any collective European effort at institution building. And it could not be done without Germany, which, ...