Crisis in the Eurozone

What happens when a vision of unity becomes a mechanism for division? In Crises in the Eurozone, economist Costas Lapavitsas and his colleagues argue that the euro was never a neutral instrument of integration—it was a deeply flawed project designed to serve the interests of European financial elites, especially German capital. The book contends that beneath the rhetoric of European solidarity lies a system that entrenched inequality, weakened democracy, and pushed entire nations into crisis.

Lapavitsas and his co-authors trace how the 2008 global financial crash exposed the internal contradictions of the European Monetary Union (EMU). Instead of promoting prosperity, the eurozone created a hierarchy between a powerful core—Germany, France, and the Netherlands—and a vulnerable periphery—Greece, Spain, Portugal, Ireland, and Italy. This unequal architecture was not merely economic; it reflected the deeper political and ideological drive to remake Europe as a neoliberal empire governed by fiscal discipline and market orthodoxy rather than democratic accountability.

From European Dream to Neoliberal Reality

The authors begin by recalling the dream of Europeanism that swept through the continent after World War II: a promise of peace, unity, and shared prosperity. Yet, as political theorist Stathis Kouvelakis explains in his introduction, this dream became the ideological cover for a neoliberal project. Post-1980s integration, spearheaded by the Single European Act and the Maastricht Treaty, replaced social solidarity with fiscal surveillance and deregulated finance. The euro—with its fixed exchange rates and centralized monetary policy—became the cornerstone of this transformation.

Like the gold standard of the early twentieth century, the euro imposed rigidity on diverse economies. Nations could no longer devalue to restore competitiveness or adjust monetary policy to domestic needs. The result was a one-size-fits-all currency that punished weaker economies while rewarding export-led models like Germany’s. As Lapavitsas notes, German capital gained through wage suppression and a relentless focus on trade surpluses; peripheral states, meanwhile, turned to cheap credit to sustain growth, creating bubbles in real estate and consumer debt that burst in spectacular fashion after 2008.

Financialization and the Global Crisis

The authors situate the eurozone collapse within a broader global process they call financialisation—a shift in mature capitalist economies where profits come increasingly from financial rather than productive activity. Banks became traders, households became borrowers, and states became guarantors of private finance. Lapavitsas describes how this shift transformed capitalism’s core: German banks lent to the eurozone periphery, while peripheral households and governments borrowed heavily, creating a pyramid of debt anchored to Berlin.

When the U.S. subprime bubble burst, this web of interdependence snapped. European banks faced liquidity crises, governments rushed to bail them out, and the ECB responded not by aiding states but by rescuing financial institutions. This choice—prioritizing financial capital over public welfare—turned a banking crisis into a sovereign debt crisis. As Lapavitsas quips, Europe managed to save its banks by destroying its people.

A Crisis of Democracy

Beyond economics, the book frames the eurozone crisis as a political failure. Kouvelakis argues that the European Union’s complex web of technocratic institutions—ECB, IMF, and EU Commission—eroded democracy by detaching decision-making from national parliaments. In Athens, Lisbon, and Madrid, elected governments found themselves under the direct supervision of Troika bureaucrats enforcing austerity measures dictated from Brussels and Frankfurt.

This, as he writes, is “disaster capitalism moving westward”—Europe applying IMF-style shock therapy to its own citizens. The effect was devastating: shrinking pensions, mass unemployment, collapsing public services, and the destruction of welfare states. Yet paradoxically, many left-wing parties continued to defend the euro as a symbol of progress, revealing a deep ideological paralysis that Lapavitsas calls “the end of Europeanism.”

The Radical Alternative

Lapavitsas and his team propose a controversial remedy: default and exit. Drawing lessons from Argentina and Russia, they argue that debtor-led default—coupled with regaining monetary sovereignty—can free peripheral economies from austerity and allow democratic control of economic policy. They envision this not as nationalist retreat but as a “progressive exit,” involving capital controls, public banking, and strategic investment to rebuild production.

In essence, Crises in the Eurozone offers a sharply Marxist reinterpretation of modern Europe: a continent caught between the contradictions of global finance and national democracy. Its message is provocative but hopeful—Europe can survive only by breaking the chains of the euro and rebuilding from below. Whether you see this as revolutionary or reckless, the authors make one thing clear: without confronting the power of finance and the false unity of Europeanism, the crisis will never end.

Lapavitsas opens Part I with the story of how financialisation—the growing dominance of finance over production—restructured Europe’s economies long before the crisis hit. Over three decades, households became borrowers, corporations turned financiers, and banks shifted from funding investment to chasing speculative profits. This transformation underpinned the eurozone’s instability.

How Financialisation Works

In Germany, banks remained relatively restrained while corporations suppressed wages to boost competitiveness. But in southern Europe, banks flooded households and firms with cheap loans after joining the euro. Spain and Ireland saw massive real estate bubbles, while Greece and Portugal fueled consumption through debt. The same low interest rates that stabilized inflation in Berlin addicted the periphery to borrowing.

The ECB’s single monetary policy—focused solely on inflation control—could not accommodate these divergences. Peripheral countries, entering the euro at artificially high exchange rates to appear “strong,” lost competitiveness immediately. Their products became expensive, their exports declined, and their imports soared. To keep consumption alive, both states and citizens borrowed more, turning national economies into financial machines dependent on Frankfurt’s liquidity taps.

Germany’s Shadow and the Periphery’s Trap

Germany’s wage suppression strategy created a structural current account surplus—exports outperformed imports—allowing its banks to recycle capital into the periphery via investment and lending. This made southern Europe the perfect borrower to Germany’s lender. Greek and Spanish debts mirrored German surpluses like two sides of a ledger. In Lapavitsas’s words, “Germany’s dynamism comes from its neighbor’s stagnation.”

When the financial crisis erupted in 2007, German and French banks were overexposed to the periphery’s bad debt. The ECB intervened not to help countries in trouble but to guarantee bank liquidity. By refusing to buy sovereign debt directly, the ECB signaled that states were expendable while banks were sacred. This omission—structural to the euro’s design—turned financialisation from a symptom into a full-blown disease.

Consequences for Labour and Society

Financialisation also transformed work and income. Across Europe, labour’s share of output fell, even as productivity rose. Germany led the “race to the bottom,” squeezing wages to maintain export competitiveness. Peripheral countries tried to catch up, but their weaker welfare states limited how much they could lower pay. This imbalance meant that while German factories exported cars and machines, southern Europe imported debt and unemployment.

Lapavitsas’s warning:

“The crisis was not the failure of the periphery’s profligacy, but the success of its integration under Germany’s shadow.”

By the time Greece’s debt exploded in 2009, the structure of financialisation had turned ordinary households into the frontline of crisis. Mortgages, pensions, and public money all became leverage points for global finance. The euro had unified markets—but only by dividing societies.

Part II reveals how Europe responded to the crisis not with solidarity but with punishment. The EU, the ECB, and the IMF—the Troika—imposed austerity programs across Greece, Portugal, Ireland, and Spain under the guise of saving the euro. Lapavitsas calls this “virtue turned vice”: fiscal discipline became a moral crusade that deepened recession and dismantled social protections.

The Logic of Austerity

Governments were told to cut spending, raise taxes, and liberalize labour markets to regain “competitiveness.” Yet, as Lapavitsas explains, this logic was incoherent. When Germany’s economy depended on high exports and low wages, any attempt by the periphery to match it through wage cuts guaranteed perpetual underperformance. Austerity reduced public deficits only by collapsing domestic demand. Jobs vanished, wages fell, and consumption shrank, pushing GDP downward and debt ratios upward—precisely the opposite of what reforms intended.

Social and Political Fallout

In Greece, austerity meant the slashing of public wages by 20–30%, pension reductions, and VAT hikes to 23%. Hospitals ran out of supplies; schools closed; unemployment soared beyond 20%. Meanwhile, Germany portrayed southern Europeans as lazy and corrupt—a return to old stereotypes repackaged as fiscal morality. Kouvelakis calls this “intra-European racism”: the disciplining of debtor nations through moralizing narratives.

Ireland and Spain suffered their own versions. Dublin guaranteed private bank debts, tripling public liabilities nearly overnight, while Madrid axed social spending and wages to calm bond markets. Across Europe, the result was the same: mass unemployment coupled with privatization of public assets—from ports to postal services—sold under crisis prices.

Austerity as Ideology

Lapavitsas argues that austerity is not simply bad economics—it is a form of class warfare. By cutting social spending and deregulating labour, austerity transfers wealth from workers to capital and from public to private hands. The eurozone became the perfect laboratory for testing neoliberal dogma: states were forced to behave like firms, balancing accounts even as societies crumbled.

Key insight:

The Troika’s policies did not solve Europe’s debt problem—they reshaped it as a system of permanent austerity, ensuring crises would recycle indefinitely.

To Lapavitsas, austerity marks Europe’s transformation from a social-democratic project to a neoliberal empire—a regime where fiscal virtue masks the steady extraction of value from its workers and citizens. The only way out, he insists, is to break the cycle entirely.

In perhaps the book’s most radical section, Lapavitsas argues that peripheral countries can only survive by defaulting and exiting the eurozone. He distinguishes between creditor-led defaults—controlled by banks and institutions to minimize losses—and debtor-led defaults—where nations take initiative to restructure debt on their own terms. The first reinforces neoliberal power; the second reclaims sovereignty.

Learning from Argentina and Russia

Lapavitsas draws historical lessons from Argentina’s 2001 collapse and Russia’s 1998 default. Both, he notes, defied IMF orthodoxy, abandoned fixed exchange rates, and endured short-term chaos but recovered rapidly. Argentina grew 8–9% annually for years after default; Russia stabilized and paid off its debts within a decade. For Lapavitsas, these examples show that recovery is possible when governments act decisively rather than obey creditors’ austerity prescriptions.

Debtor-Led Default in Practice

A debtor-led strategy involves suspending payments, auditing debt to identify illegitimate portions, and demanding cancellation—what economists term a “haircut.” Lapavitsas suggests democratic control through public audit commissions comprising civil society and unions. Beyond the audit, he envisions comprehensive reforms: nationalizing banks, imposing capital controls to prevent flight, investing publicly in infrastructure and green development, and redistributing income through progressive taxation.

The goal is not isolation but autonomy. Exit allows nations to regain control of monetary policy—reintroducing their own currency (such as a new drachma for Greece)—and reorient economic priorities toward employment and welfare rather than bond yields. The risks—short-term inflation, currency devaluation—are real but manageable. The benefits—sovereignty, democracy, and sustainable growth—are long-term.

A Progressive Path Forward

Unlike populist calls for nationalist retreat, Lapavitsas’s exit strategy is grounded in solidarity. He sees “progressive exit” as a transitional program to rebuild Europe from below: public ownership of finance, coordinated industrial policy, and regional cooperation among post-euro nations. For him, breaking the euro is not about leaving Europe—it’s about reclaiming it from its financial elites.

Lapavitsas’s conclusion:

“Europe cannot be saved by austerity or reform. It can only be rebuilt through the courage to confront the euro itself.”

This idea remains controversial, but for Lapavitsas, the alternatives—endless stagnation, democratic erosion, and social despair—are far worse. Default and exit are not the collapse of European civilization, he insists; they are its potential rebirth.

Running throughout the book is one constant theme: the eurozone crisis is not just economic—it's political. Germany’s role as the euro’s economic anchor gave it disproportionate influence over the policies that followed. Lapavitsas compares contemporary Europeanism to the gold standard a century ago: a rigid system defended by fear and moral rhetoric instead of solidarity.

Fear as Political Tool

Lapavitsas notes that Europe’s ruling elites used fear to maintain obedience. Citizens were warned that leaving the euro would bring catastrophe—hyperinflation, bankruptcy, international isolation. Yet the historical parallel to abandoning the gold standard in 1932 suggests otherwise: when countries finally exited, they recovered. The fear narrative serves a purpose—it keeps labor subdued and the system intact.

The Moralization of Economics

As Kouvelakis writes, austerity became moralized as “virtue”—a collective sacrifice for stability. Germany’s media and politicians painted Greeks and Southerners as sinners who needed discipline. This deliberate moral framing masked how Germany’s competitive exports depended on suppressed domestic wages and others’ deficits. The problem wasn’t moral—it was structural.

The Left’s Confusion

One of Lapavitsas’s most biting critiques is aimed at Europe’s Left, which continued to defend the euro in the name of unity. Marxists who once opposed fixed monetary systems became defenders of a variant of the gold standard. This ideological surrender left workers without representation as austerity ravaged their lives. The call for “a good euro”—a reformed monetary union with fiscal transfers—was, he argues, wishful thinking. Without a political federation, such reform is fantasy.

“Germany’s power within the eurozone is not declared—it is embedded,” Lapavitsas observes. “Its legitimacy comes wrapped in the cloak of Europeanism.”

The politics of fear turned the promise of European unity into the instrument of its fragmentation. According to Lapavitsas, the future of democracy in Europe depends on breaking this spell—rejecting fatalism and rebuilding institutions that serve people, not markets.

In its closing chapters, the book charts a vision of what Europe could become if it broke free from the euro’s neoliberal framework. Lapavitsas calls for a new democratic economic order built on transparency, accountability, and social participation. Instead of technocratic management, economic policy should return to public debate and control.

An Economy for Society

The authors outline a set of transitional demands—neither utopian revolution nor minimalist reform—that could realign Europe’s economy toward human needs. These include the nationalization of major banks under public oversight, progressive taxation to curb inequality, regulation of capital flows, and investment in green and social infrastructure. For Lapavitsas, democracy depends on restoring social control over money and credit.

Reclaiming National Sovereignty Without Nationalism

Crucially, Lapavitsas distinguishes sovereignty from isolation. Leaving the euro does not mean leaving Europe. He envisions cooperative networks among post-euro states—mutual trade agreements, shared technological projects, and regional development plans. What matters is who decides economic priorities: citizens or creditors.

Democracy as Economic Praxis

Like Marx, Lapavitsas treats democracy not as an abstract ideal but as a material practice. Economic structures determine political agency: if money and debt are controlled by unelected institutions, political freedom is meaningless. By defaulting on debt and reasserting democratic control over production and finance, peripheral nations could revive Europe’s political imagination.

“Europe’s crisis,” Lapavitsas concludes, “is not the end of democracy—it is its opportunity.”

The book ends on a note of cautious optimism. If Europe cannot reform from above, it may yet reconstruct itself from below—from the social forces reclaiming control of work, credit, and state policy. The challenge, Lapavitsas insists, is not to save the euro but to rediscover what being European truly means.