Europe "has not yet overcome the crisis". And today the risks of a relapse "are even greater than before". Countries like Italy, in the meantime, "have been impoverished" and others, like Greece, have ended up in a "desperate" situation. Why did all this happen? Because of a "liberal-market ideological rigidity" that prevented Europe from engaging in self-criticism and responding adequately to the economic-financial earthquake. Mario Pianta, full professor of Economic Policy at the University of Urbino, looks back on a decade of crisis, explaining what would need to be done to avert new difficulties.

Read also: Cosa hanno prodotto dieci anni di austerità in Europa e nel mondo

Since the end of 2008 the entire Western world has been grappling with a crisis — first financial, then economic — that has been devastating. What happened?
The effects of the financial crisis, which originated from the collapse of several banking institutions in the United States, manifested themselves in two ways: on one side through the demand channel, as a result of the collapse in income and output. On the other through the financial channel. In practice, banks, having experienced a generalised earthquake caused by speculation and the abuse of dangerous products, were forced to review their balance sheets, reassess risks and adopt greater caution. In practice, they turned off the credit tap. And that hit businesses hard, as they could not count on the support they needed.

What do the public debts of European countries and the spread have to do with all this?
Subsequently, banks also began asking themselves what level of risk was involved in investing in the public debt of various nations. The problem is that in Europe, before the crisis, it was believed that the public debt of the various nations was in some measure guaranteed by the collective of states. Then, suddenly, Germany — the economically strongest nation — left the others to fend for themselves, particularly the southern countries. And the financial markets said: "Fine, if everyone is on their own, then the individual risks are much higher." As a result, in order to agree to buy the debt (that is, government bonds, ed.), they demanded much higher interest rates. And so the spread grew (that is, the difference between one country's rates and those of Germany, considered the safest, ed.).

Governments responded to all this with austerity. Was that the right choice?
Not all governments: in the United States there was a response commensurate with the severity of the crisis. The decision was taken to increase public spending immediately — already under Bush, even before Obama. That increase in spending made it possible to respond to the collapse in private demand. In addition, "quantitative easing" was introduced straight away — a massive injection of liquidity into the system: oxygen to revive above all the stock market, which had lost 40 per cent of its value.

Did it work?
In practice, in the United States there was a brief recession followed by a recovery. But it must be said that the recovery, unfortunately, was once again fuelled by speculation. Just as before the financial earthquake. So the value of the Wall Street stock market returned to pre-crisis levels as early as 2011, and now we are at 150 per cent. With all the risks that entails.

And what was done in Europe instead?
Within the European Union, two ideas took hold: first, that states should not intervene, because the free market is capable of self-regulating and responding to crises. Second, that the problem lay with public debts rather than with the architecture of Europe itself. In other words, governments scaled back spending, cutting everything they could, in order to save money. And in doing so they made the crisis worse. The institutions then imposed measures such as the Fiscal Compact, which actually obliges everyone to maintain a balanced budget, forcing every government to pursue austerity policies. This paralysed the economy, especially for those countries — like Italy — that depend not only on exports but also on domestic demand.

What was the result?
That today in Italy GDP is still 8 percentage points below pre-crisis levels. So we are poorer than we were 10 years ago. In terms of per capita income, the level is in fact that of 15 years ago. And if we exclude the wealthiest 10 per cent of the population, for the remaining 90 per cent income is at the level of 20 years ago.

So in reality we haven't come out of the crisis?
There has been no exit from the crisis whatsoever. On the contrary, we have experienced a structural collapse in industrial output, which is still 25 per cent lower than it was 10 years ago. We have, in practice, lost a quarter of our productive capacity.

What was Europe's mistake?
The EU refused any reform that would have allowed markets' perception of risk to be reduced. And it smothered demand with austerity. The exact opposite of what should have been done. The only thing that prevented implosion was the decision by European Central Bank (ECB) governor Mario Draghi, who introduced quantitative easing in the Old Continent as well. But the ECB, unlike other central banks, cannot directly purchase government bonds — that is, the debt — of member states. So it was decided to give private banks the liquidity needed to do so. On that front the strategy worked, but no money flowed from the financial system to businesses and households. So one of the two aspects of quantitative easing that worked in the United States was missing.

In Greece in particular, the suffering has been enormous.
Greece is the extreme example of these dynamics. Growth before the crisis had been strong and based on public spending, but without adequate domestic productive capacity. Athens then found itself at the centre of a political tug of war: the aim was to demonstrate that Greece had to obey European diktat rather than being free to decide democratically how to respond to the crisis. Austerity was thus imposed and the situation became desperate. Productive capacity and per capita income fell by 40 per cent. Public spending was slashed so savagely as to make it impossible to provide even essential services, such as healthcare. All of this was due in particular to Germany, obsessed with the desire to impose its own model on everyone. But the reality is that Germany has a trade surplus greater than China's: copying it is impossible.

Read also: La Grecia esce dal piano di aiuti europeo. Come sta l'economia dopo otto anni di austerità

Some point to Portugal, however, as a case of austerity working.
The truth is that after the disaster in Athens, the EU understood it could not afford another Greece. Portugal had experienced a similar crisis, but was given more room to maintain a minimum of public spending and domestic demand. In addition, a flow of capital from abroad was maintained, along with decent social policies. Moderately progressive governments, backed by the radical left, made it possible to reach a compromise. But even in Portugal the margins remain limited: if the Fiscal Compact is not changed, if debt is not mutualised, it is clear that Europe is destined to travel at multiple speeds.

You mentioned Germany: wouldn't it have suited her too to have healthy European partners?
Germany has an extremely high level of exports on the one hand. But its competitiveness is not based on low-cost goods. Berlin exports cars and targets wealthy consumers. And the latter are far better protected from the crisis. Furthermore, German governments decided to diversify, exporting heavily to Asia and thus limiting dependence on southern Europe. Not to mention that the German production system is very complex: everything with low technological content is relocated to other countries, especially in eastern Europe. This allows Germany to control the production processes of many countries. Part of Italy itself is tied to the German wagon.

And yet the academic world repeatedly stated that austerity would not work. Why did politicians not listen to the experts?
Partly because of an ideological free-market rigidity. It is the dominant idea, underpinning the policies that allowed speculation to flourish. It is no coincidence that finance backed this approach: suffice it to say that almost all the central bank governors of the countries of the Organisation for Economic Co-operation and Development (OECD) come from institutions such as Goldman Sachs or the International Monetary Fund. This bloc, deep-rooted and entrenched, believes that any state intervention distorts the market and must therefore be reduced. Except that in the end it was states that saved capitalism from itself.

Yet within the International Monetary Fund (IMF) there were also dissenting voices, such as that of chief economist Olivier Blanchard.
There is a schizophrenia within the IMF. Blanchard was somewhat more Keynesian and developed critical positions on austerity. So, at times, if you read the analyses produced by the IMF's research department, you find positions that are even further to the left than many European social-democratic governments. But then, when it came to making decisions about Greece, the Fund proved to be a conservative force.

Even if the response to it was wrong, did the crisis at least serve to build the antibodies needed to prevent new financial earthquakes?
Absolutely not. The current financial bubble is worse than the one before the crisis and could burst at any moment. Aside from quantitative easing, no effective instruments have been put in place. To understand the situation, it helps to imagine that before we had a house without a roof, and speculation flooded it with torrential rain. Today we are still without a roof and the dark clouds overhead have multiplied.

Do you think the public is aware of this?
These ten years have not allowed people to learn very much, because the impoverishment imposed above all on southern Europe has triggered a populist social dynamic. It has led people to react from the gut, to look for scapegoats. So instead of understanding that these kinds of economic powers are the cause of inequality, poverty and the difficulties we face, the enemies have become migrants.