How inequality fuelled the euro crisis

Brussels

SINCE the Great Recession of 2007-2009, most economists have begun to regard finance as a key driver of the business cycle. But the precise dynamics are not yet fully understood.

For example, the University of Chicago's Amir Sufi and Princeton's Atif Mian argue that credit expansion leads to nasty recessions, which emerge as soon as households, for whatever reason, lose access to the financing they need to roll over their debts. But this argument misses a key factor, exemplified by the eurozone crisis.