Breaking up Is Hard to Do: Why the Eurozone Will Survive

Abstract

Since revelations of the Greek fiscal deficit in the fall of 2009, the breakup of the Economic and Monetary Union (EMU) has moved from unthinkable to plausible. The debate over the future of the EMU has become increasingly relevant, as numerous efforts to solve the Greek crisis have not been successful. Neither have basic competitiveness differences between countries in the core and periphery of the European Union been eliminated. Proposed solutions include development of a banking union, regulatory measures to monitor trade and capital imbalances, fiscal reforms on the part of countries in trouble, and centralized fiscal capacity on the part of the EMU itself to offset the liabilities of the indebted states. While the crisis seems to be contained, it is by no means solved. This leads to the question: "Will the euro survive?" We answer this question in the affirmative, but in doing so we argue that continuation of the EMU is different from the question of whether the EMU should have been created in the first place. Some reasons for continuation of the EMU were present at its creation; others have developed in a path-dependent way as the Eurozone has evolved.

Populism and COVID-19: How Populist Governments (Mis)Handle the Pandemic

“…The Eurozone crisis created pressure on governments to adopt austerity measures, but in some cases these policies were influenced by external actors -the Troika effectively reduced voters' ability to exercise control over policy. This created demand for outside political actors to supply radical policy alternatives that political insiders knew to be infeasible (Aslett and Caporaso, 2016).…”

“…4 When the debt crisis hits, we argue that unforeseen pressure from foreign interests causes the establishment parties to deviate from their prior platform away from the direction of the populist party and towards further austerity. This is because all parties involved in government were aware of the lack of alternative policy options given the need for debt relief and because the costs of leaving the Eurozone would outweigh the benefits (Aslett and Caporaso, 2016). When the two establishment parties shift towards further austerity, it is the case that for some voters their closest party changes from the middle establishment party to the populist party -hence, aggregate support for austerity increases.…”

From Market Integration to Core State Powers: The Eurozone Crisis, the Refugee Crisis and Integration Theory

“…The former would gain enhanced policy autonomy and freedom from troublesome cross‐border interdependencies, the latter would benefit from facilitated agreement on common policy measures and a lighter overall problem burden. Yet, these benefits were associated with considerable costs (Aslett and Caporaso, ; Eichengreen, ; Niemann and Speyer, 2017; Schimmelfennig, ). First, national exit devalued the sunk costs tied to EMU and Schengen: Private parties stood to lose to the extent that their savings, investments, logistics and life plans were premised on the euro and the absence of internal border checks; state elites risked a loss to the extent that their income, reputation and career prospects derived from their role in running either EMU or Schengen.…”

Stability and Growth Pact: Too Young to Die, Too Old to Rock ‘n’ Roll

“…Back in 2005, as France and Germany could not implement their strict fiscal rules, the SGP became more flexible. Six years later, in 2011, as many countries faced serious fiscal imbalances (e.g., Portugal and Greece), the SGP was reformed and became stricter (Aslett and Caporaso 2016). In 2020, the EMU activated the "Escape clause", letting governments implement fiscal expansion.…”