The European Financial Crisis

CHAPTER 5

Flight of the Bumblebee: Precrisis Structural Imbalances and Their Influence in the Eurozone

Introduction

Although like a bumblebee the Eurozone was not supposed to be able to fly, initially it did not seem to matter. For over half a decade general growth and greater prosperity seemed to be the common outcome across most of the monetary union. In the first years of the euro from 2001 to 2007, the original 12 countries of the Eurozone (EU-12) experienced average annual real GDP growth rates of over 2.7%, even despite a recession and weak recovery in the United States, which impacted Eurozone exports. While not all countries experienced uniform growth as shown in Figures 1 and 2, rates of growth were high across most of Europe. Furthermore, ...