Crisis countries have set harsh cuts in their social security systems
The scathing criticism of lacking reform zeal in the current crisis countries is missing the point. Especially the ailing countries have no other choice than deeply revamping their economic, financial and social systems. But even prior to the crisis some vulnerable countries have embarked on painful but necessary reforms as suggested by a rising retirement age.
By contrast, the popular view in Germany and Austria that insufficient reforms were the main crisis trigger is linked to the idea that the latter countries had done their homework on time and thus are less affected by the crisis. It is noteworthy that even though labour market reforms such as Agenda 2010 or Hartz I-IV were aiming at a higher flexibility of the labour market,the German labour market is still far less flexible than the Irish one. But still, Ireland was hit much harder by the crisis than Germany. In Spain, young workers lost basically any protection against job redundancy due to the widespread use of temporary contracts, yet youth unemployment has exceeded the 50%-mark. In other areas such as the reform of ‘liberal professions’ (e.g. lawyers, chemists, etc.) the situation in Germany and Austria is hardly better than in Italy or Portugal. More competition in these areas would certainly be advisable in its own right, but of course it would not prevent a future financial crisis or alleviate its repercussions.
In order to limit the likelihood of future economic and financial crises in Europe, it is necessary to reform financial market regulation (keywords: Basle III and capital adequacy requirements) and to push a comprehensive European banking supervision. However, first and foremost, the economic and social repercussions of the crisis and the negative feedback loops rampaging in affected countries must be contained. This might require a certain degree of risk sharing among Member States when it comes to the creation of EU-wide bank resolution and deposit insurance schemes. But just here, countries like Germany and Austria slam on the brakes and waste precious time by pursuing a purely national agenda and by catering to particular interests of individual banking organisations.