Jingle bells and struggling GIPS: Comparing the Baltic and the southern euro zone’s crisis experience using the varieties of capitalism framework

Abstract

This article compares the experience of the Baltic countries and the eurozone's southern members, the GIPS (Greece, Italy, Portugal, Spain), in terms of the run-up to the Great Recession and the eurozone crisis, responses during the downturn, and the subsequent recovery (or lack thereof). It discusses numerous apparent similarities in terms of the build-up of macroeconomic vulnerabilities and the content of anti-crisis strategies pursued as well as the substantially different results of these policies. This article applies the VoC (Varieties of Capitalism) approach. To this end, it presents theoretical expectations regarding different varieties' vulnerability to macroeconomic imbalances, preferences regarding anti-crisis policy as well as the likely outcome of the internal devaluation strategy. The article fi nds the VoC approach largely useful, although it is more helpful in accounting for the nature of reaction to the crisis and the outcomes of anti-crisis policy, while less so in explaining the initial accumulation of vulnerabilities.

Race to the Eurozone: Why Latvia Joined Before Lithuania

“…On the one hand, both Latvia and Lithuania lagged markedly behind the Eurozone in terms of economic development (see Figure 3) and labour productivity; furthermore, their business cycles were not synchronized well with the Eurozone's, as revealed by very large booms and busts in the two countries during their decade of EU membership. On the other hand, both countries were exceptionally flexible, an important factor in overcoming the crisis of 2008 to 2010 (Purfield and Rosenberg, 2010;Kuokštis, 2015). Apart from nominal wage flexibility, this also encompasses labour mobility and firms' abilities to adapt to changing circumstances (Kuokštis, 2015 the two countries' overall trade-with 32 per cent and 30 per cent, respectively, during the analysis period of 2004 to 2012.…”

“…On the other hand, both countries were exceptionally flexible, an important factor in overcoming the crisis of 2008 to 2010 (Purfield and Rosenberg, 2010;Kuokštis, 2015). Apart from nominal wage flexibility, this also encompasses labour mobility and firms' abilities to adapt to changing circumstances (Kuokštis, 2015 the two countries' overall trade-with 32 per cent and 30 per cent, respectively, during the analysis period of 2004 to 2012. 4 Overall, OCA theory has a hard time explaining variation in the values of our dependent variable, especially the divergence in Latvia and Lithuania's willingness to adopt the euro at the end of the analysed period.…”