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nterest rate in order to refinance public debt, national authorities have been strongly induced and sometimes constrained to adopt rather drastic austerity plans. However, this has proven to be insufficient to appease the anxiety of the international finance community. Thus, both the European Union and the International Monetary Fund (IMF) have been called to support and monitor the adjustment process, first in Greece, then Ireland and Portugal. The present article aims to assess the relevance of such austerity policies given the unfolding of the crisis and the present stage of European integration. The diagnosis upon which they are based refers to the first-generation crises, which were caused by an excessive public deficit that was incompatible with a fixed exchange rate regime (Krugman, 1979). In contrast, the present crisis is the outcome of a private credit-led boom linked either to the piling up of complex and dangerous financial innovations (the USA and the UK) or to the unintended consequence of the euro for previously weak currency countries (Greece, Portugal, Ireland and Spain). This is the first fallacy pointed out by this article (see Section 2). From a macroeconomic point of view, austerity-generated recovery neglects the notion that strong effective demand effects might trigger a vicious circle of the cumulative loss of output and tax revenue, propelling a further and unintended explosion of the stock of the public debt/Gross Domestic Product (GDP) ratio. Symmetrically, this second fallacy takes for granted that crowding in and competitive mechanisms can quickly stop the downwards adjustments and trigger a vigorous recovery (see Section 3). The third fallacy relates to the belief that macroeconomic configurations are roughly the same in all Downloaded from https://cje.oxfordjournals.org/ at University of Liverpool on January 23, 2013
Contemporary austerity policies 285 developed countries. Hence, the governments of ailing countries should not hesitate to follow the strategy, even if socially and politically costly, that finally benefited the German economy so much. The diversity of capitalisms (Aoki, 2002) and their regulation modes (Boyer and Saillard, 2001; Amable, 2003) invalidates the ‘one size fits all’ vision that is implicit in contemporary economic policies (see Section 4). Lastly, the growing interdependencies between the member states of the eurozone make problematic the combination of their austerity policies. These growing interdependencies may even reinforce the factors of depression in the absence of a privately engineered recovery that would be associated with the restoration of confidence in the viability and efficiency of the eurozone (see Section V). A paradoxical conclusion emerges: is not the international finance community undermining its own basis and legitimacy by pushing such extreme and inefficient austerity plans?

2. The origin of the crisis: a private credit boom, not lax public policy

With the progressive liberalisation of finance, first at the international level and then domestically, banking and exchange rate crises have become more frequent, initially in Latin America, e.g. in Mexico, then in Europe during the process of convergence towards the euro and, lastly, in East Asia (Reinhart and Rogoff, 2009). Macroeconomists have had to recognise that the processes leading to the crisis were different in each case. The early Mexican crisis ex