The systemic nature of the Eurozone crisis

26.07.2013 - 14:59

The Eurozone has entered its fourth year of crisis. Member states have been falling into debt so severe, they have had to request bailouts tied to crippling austerity measures. Instead of providing some relief, these measures are only making matters worse. Like dominoes, successive member states find themselves on a negative economic watch. Living conditions have deteriorated and unemployment rates are skyrocketing. In the last four years, Europe has witnessed countless strikes and demonstrations, two hung parliaments, razor-sharp elections wreaking havoc with the stock market and the advent of capital controls on private finances. What began as a financial crisis has turned into a social crisis and a European identity crisis.

This clearly shows that the steps taken by European leaders to address the euro crisis have not worked; instead, they are putting the European Union itself in danger. Instead of addressing core systemic problems, the EU has been defending its policies both within and outside of its borders. A few months ago, an IMF staff report revealed the gross miscalculations made regarding to the contraction of Greece’s economy and the rise of unemployment. The Commission flatly rejected the IMF’s findings. The ECB faces trial for its bond markets programme in Germany and no substantial progress has been made on a fiscal union.

The agendas of Germany, the Euro group, the European Central Bank and the Troika painfully show that the interests of banks and powerful member-states supersede the common EU good. This is not how or why the European Union was formed, but it has been the status quo ever since the crisis erupted.  What is most surprising is that, despite the negative outcomes, the policies and solutions proposed have been isolated from each other in a technocratic, case by case approach.

We need a new perspective to address the Eurozone crisis. For this reason, Harvard University and the European Parliament have joined their efforts to analyse the Eurozone crisis from a new angle. During this summer semester, the Systems Thinking Summer School will take the Eurozone crisis as case study and will examine the European Union as the complex, interrelated system that it is; the aim is to connect actors, institutions, decisions and events and analyse their effects.

A ‘systems thinking’ approach can explain how the different parts of an entity relate to and affect each other. The EU is fertile ground for such an analysis because it is made up of numerous parts that interrelate (institutions, bodies, regulations, rules and processes). What happens in different countries and different sectors affect it in its entirety. The EU is an enormous, complex socio-economic eco-system. Throughout the course, we will examine whether the miscalculations which have occurred so far can all be traced back to a failure to recognise the interconnected nature of these cases in a social ecosystem which has caused a swath of negative chain reactions.

We believe that in an inter-dependent, multi-layered European Union, the answer can only come from a systemic approach that could pull the EU out of continuous recession. The Systems Thinking students will base their research on current affairs and the insights provided by direct actors in the Eurozone. The goal is to engage the participants in an unconventional analysis of the financial crisis in Europe and highlight its systemic importance.

The President of the European Parliament, Martin Schulz, who recently warned of the systemic risks that rising youth unemployment brings, has lauded these efforts and looks forward to the results that will be obtained. These results will be presented at the European Parliament at the end of this year.

All European leaders have a responsibility to push for greater cooperation and understanding across all the structures involved. They would do well to embrace a systemic perspective. We hope that the research done in Harvard this summer and the input of the actors involved will make a valuable contribution towards this goal. Hopefully the outcomes can help shed light on managing systemic crises, if not preventing them altogether.