Three secular trends

The sovereign debt crisis was the most dramatic manifestation of the Eurozone crisis. It also led to the most profound changes in the European macroeconomic constitution, with important spillover effects in the fields of the political and social constitution. Yet, it was only the last phase in a series of predicaments which hit most of the developed economies beginning in late 2007. The Eurozone crisis was a result of manifold economic factors, which include both long-term secular trends and more recent developments. Together the long- and short-term factors explain why so many of the underlying economic assumptions of the Maastricht macroeconomic constitution proved to be mistaken and why the Eurozone responded to the crisis in the manner it did.

Three secular trends in the global economy, which were more or less neglected in drafting the European macroeconomic constitution, need to be recognised in order to understand the root causes of the crisis: a constant increase of private and public debt in the developed economies since the beginning of the 1980s; inclusion of the emerging economies (EME), particularly those in Asia, in the global economy; and the trend-wise decline in the volatility of GDP growth and inflation which came to be known as the Great Moderation but which could in effect have been a change in the nature of economic cycles from shorter-term traditional cycles to medium-term financial cycles.