Jan 2 2014

The Systemic Nature of the EU Crisis: Reflections on a Deepening Issue

By Mark Esposito

batch001-008The Eurozone has entered its fourth year of crisis and 2013 has been a challenging year for a large number of Member States, who have been falling into severe debt, requesting bailouts tied to crippling austerity measures. If we thought the issue was namely a Greek syndrome, this year has proven otherwise.

Instead of providing some relief, the austerity 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 have been skyrocketing[1]. 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 and banking crisis in 2008 has turned into a social crisis and a crisis of the European identity; probably the worse the European Union has ever experienced in its lifespan.

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[2] 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 program 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.

A new analytical study has been conducted during the past summer, with a joint effort between Harvard University and the European Parliament, taking the Eurozone crisis as case study comprising a complex, interrelated system populated by connecting actors, institutions, decisions and events. The study received the endorsement of the European presidency, represented by Martin Schulz[3], who has supported the initiative, since its inception.

The benefits behind 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. Significant miscalculations and misperceptions have occurred so far, tracing this all back to a failure to recognize the interconnected nature of these cases in a social ecosystem, which has caused a swath of negative chain reactions.

It is to 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 goal is to engage the multiple constituents in an unconventional analysis of the financial crisis, highlighting its systemic importance.

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: there is hope that the research done at Harvard in the summer of 2013 and the input of the actors involved will be able to make a valuable contribution towards this goal. Hopefully the outcomes can help shed light on managing systemic crises, if not preventing them altogether.


[This article/a version of this article] originally appeared on New Europe.


Dr. Mark Esposito is an Associate Professor of Business & Economics at Grenoble Graduate School of Business in France, an Instructor at Harvard Extension School, and a Senior Associate at the University of Cambridge-CPSL in the UK. He serves as Institutes Council Co-Leader, at the Microeconomics of Competitiveness program (MOC) at the Institute of Strategy and Competitiveness, at Harvard Business School.
 Mark is the Founding Director of the Lab-Center for Competitiveness. 
His full profile can be found at www.mark-esposito.com and he tweets as @Exp_Mark.

Note: This article gives the views of the author, and not the position of the Euro Crisis in the Press blog, nor of the London School of Economics.

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