The eurozone crisis broke out in 2010, hard on the heels of the Great Recession of 2007-2009. It partook of the systemic collapse of finance and production and expressed the contradictions of financialization and neoliberal economic policies that had manifested themselves in the Great Recession. But the crisis in Europe assumed a special virulence and lasted for an unusually long period because it was uniquely framed by the specific domestic balances of class power and the rigid hierarchy of nations that defines the European Economic and Monetary Union (EMU). The most important factor in this respect has been the dominance of German industrial capital over German labor, which ultimately prepared the way for German hegemony over Europe.
During the late 1990s and early 2000s, German capital delivered a blow to German labor, weakening the country’s long-standing corporatist structures and relegating the working class to a clearly subordinate position. This opened the way for a long period of wage stagnation as well as major social spending cutbacks in Germany. Within the framework of the EMU, the resulting change in the balance of domestic class forces allowed German manufacturing-exporting capital to assert its competitive supremacy. During the same period the placement of substantial German foreign direct investment (FDI) in connection with the extensive supply chains in neighboring countries, and especially some that formerly belonged to the Eastern Bloc, further increased German competitiveness and commercial supremacy.
Germany’s ensuing assertion of its competitive supremacy prepared the ground for constructing new political forms and institutional arrangements in the European Union that could translate Germany’s industrial export preeminence into political dominance. The defining moment in this evolution arrived when Germany assumed leadership over its European partners in determining the EU response to the crisis. Germany accomplished this feat by taking advantage of its position as prime European lender and creditor, built up over years of German exporting surpluses. It obliged debtor countries in the periphery of the EMU, especially Greece, to accept suffocating policies of austerity and liberalization as the condition for bailing them out. It also imposed changes in the EU that institutionalized austerity and neoliberalism for countries of the core, such as France and Italy.