The Great Recession of 2008

The strident declaration of the Spanish Prime Minister could easily be taken as a symptom of being out of touch with reality or merely stupid. This, however, would be fairly unjust toward a politician who, although he served a vital function, never claimed to specialize in economics. Meanwhile, many experts in the field were long convinced there were no dangers on the horizon.²

Alessandro Roncaglia noted: “Setting the date when the financial crisis began is basically a vain pursuit. The choice is arbitrary and depends on what we acknowledge to be the beginning.”³ Back in 2007, major problems began on the financial markets, so that the “collapse of Lehman Brothers on August 15, 2008 might be seen as the point when the recession reached its climax.”⁴

In 2007–9 shares on the biggest stock markets of USA and Europe were halved in value.⁵ After the financial recession came the crash of the “real economy.” A Spanish economic historian, describing his country’s troubles, stressed that: “If we look at the whole European Union, we see that of its twenty-eight member states, apart from Spain, the GDP of fourteen other countries was lower in 2013 than in 2007 (Croatia, Cyprus, Denmark, Estonia, Finland, Great Britain, Greece, Holland, Hungary, Ireland, Italy, Latvia, Luxembourg, and Portugal.”⁶

Having grappled with public debt before the serious problems occurred, resulting in the actual loss of some sovereignty in economic policy, some state governments were contemptuously referred to as “PIIGS” (Portugal, Ireland, Italy, Greece, Spain).

Like the date of the recession’s start, its origin can be shown in various ways. Events of this kind, or their exact course, usually have a series of causes: long-, medium- and short-term. In the long-term scale, we can list a few problems: a high level of public debt, inequalities in international trade, the progressive deregulation of the banking sector, social inequalities leading to “life on credit,” a blind faith in the infallibility of the free market, the excessive growth of the financial sector and optimistic trust in advanced financial models.⁷ In the short term, the crisis was detonated by a real-estate bubble, revealing murky connections between various financial institutions when it popped—connections that were murky for the institutions themselves. As a result, the hunt began for secure assets—a typical panic situation.

Unlike in 1929, the governments responded almost immediately—though some believe their response was somewhat late anyway. The American FED took the lead, supported in Europe by the European Central Bank. “The use of funds is comparable, owing to their potential amount, to those used for World War One. If they seems less impressive at a first glance, it is only because, for the most part, they are being spent on securing the future, on avoiding the theoretical possibility of a large bank collapsing.”⁸

As one protagonist of Andrzej Sapkowski’s books says: “put together the million you have and the million you don’t and you get two million.” The government guarantees supplied to the banks could have served far more progressive aims than putting out fires… In the end it was not as bad as it was eight decades before—but should that make us proud?