Conclusion

The concluding chapter begins by summarizing and discussing the insights that this book has generated. It has addressed three aspects that have received scant attention in existing research: The importance of analyzing the Eurozone crisis in comparative perspective, the importance of examining the whole range of policy options, including the ones not chosen, and the importance of analyzing crisis politics not just in deficit-debtor, but also in surplus-creditor countries. Because the bulk of the book’s analyses have focused on domestic distributive struggles, the concluding chapter turns to the question to what extent the book’s approach is useful for understanding the distributive struggles on the European level as well. For this purpose, the chapter examines how surplus and deficit states positioned themselves with regard to the core EMU-related issues and reforms that were discussed in the European Council during the Eurozone crisis. The analysis shows that on policy issues related to questions of adjustment and financing, deficit and surplus countries aligned in opposing camps. Moreover, creditor-surplus countries managed to secure policy decisions in line with their preferences on almost all adjustment-related policy issues. This meant that deficit countries had to carry the bulk of the adjustment burden. In contrast, surplus countries showed more willingness to compromise on issues related to financing. The chapter concludes with a discussion of the policy implications of the findings and offers an agenda for future research.

Crisis Politics in Deficit Countries

How did the preferences of interest groups shape the design and contentiousness of crisis policies in deficit countries? And how did external actors influence their crisis responses? This chapter investigates these questions by drawing on a wealth of primary and secondary sources including newspaper coverage, voter public opinion data, interest group position papers, sovereign bailout documentation, and original qualitative evidence from seventeen in-depth interviews with national interest group representatives in Ireland, Spain, and Greece. There was a large consensus among both interest groups and voters across all three countries that external adjustment—that is, unilateral euro exit—should be avoided at all cost. This left financing and internal adjustment as the only options, and significant conflicts flared up in all three countries about how the costs associated with internal adjustment (and to a lesser extent financing) should be distributed. Within the confines set by the Troika, which effectively narrowed down the range of options available to deficit countries, interest groups pushed for reforms to which they were least vulnerable. Business interests, for example, generally supported adopting comprehensive spending-based consolidation measures and labor market reform. Conversely, labor unions and social policy groups actively supported policies that would entail stronger burden-sharing between firms and workers. Overall, internal adjustment policies adopted across all three cases generally reflected the preferences of employer associations more than those of workers, but especially in Spain and Greece, this was associated with considerable political upheaval.

Distributive Conflict and Interest Group Preferences in Deficit Countries

The politics of adjustment in deficit countries were characterized by strong domestic discontent, leading to significant political upheaval. Why did policymakers in these countries nonetheless implement unprecedented austerity and painful structural reforms? Zooming in on the domestic drivers of this adjustment choice, this chapter highlights mechanisms by which internal adjustment grew more politically feasible in deficit countries. The chapter draws on original survey data on the policy preferences of 359 economic interest groups in Ireland, Spain and Greece. It finds that while groups were consistently negative to a full range of scenarios by which external adjustment could be achieved in deficit countries, their preferences toward austerity measures and structural reforms varied much more widely. This variation, it is argued, facilitated the formation of pro-internal adjustment coalitions in deficit country contexts. Moreover, the chapter shows that opportunity costs mattered. While opposed to internal adjustment in absolute terms, a large majority of interest groups in deficit countries grew pliable to the prospect of it when faced with a choice between this and the alternative of abandoning the euro; even if internal adjustment programs were comprised of policies that groups themselves distinctly opposed.

Crisis Politics in Surplus Countries

This chapter investigates how distributional conflicts between economic interest groups interacted with the preferences and priorities of voters and political elites in shaping crisis outcomes in surplus countries. Leveraging public opinion data, qualitative evidence, and information gathered in thirty interviews with policymakers and group representatives for a comparative case study, the chapter analyzes why surplus-country governments remained hesitant toward bailouts and alternative financing and why—even though interest group conflicts about internal adjustment policies looked very similar—Germany, Austria and the Netherlands varied in the extent to which they engaged in domestic expansion during the crisis. It shows that gridlock amongst interest groups about how to adjust internally is especially likely to result in non-adjustment in contexts in which voters give little priority to boosting domestic demand and domestic political elites are able to design crisis responses in concordance with their own ideological convictions. However, in contexts in which the domestic economic climate makes economic reforms become a politically salient issue, policymakers have large incentives to overrule the gridlock amongst interest groups. As a result, even highly export-oriented countries implement measures that boost domestic demand and lead to a meaningful rebalancing of the current account.

Surplus Country Vulnerability to Rebalancing

Surplus countries usually do not attract attention in balance-of-payment crises. However, even though the immediate crisis repercussions mostly center on countries with large current account deficits, surplus countries form an integral part of current account imbalances. They contribute to the underlying problem and could be part of the solution. While in the Eurozone crisis this became especially apparent in negotiations about bailout packages and mutual adjustment measures, such conflicts between surplus countries and deficit states occupy hardly a unique situation. This chapter, therefore, examines the position of surplus countries during the Eurozone crisis in a broader, comparative perspective. Building on the concepts laid out in Chapter 2, it develops a quantitative measure of surplus country vulnerability profiles, which express the relative costs of external and internal adjustment. Specifically, vulnerability profiles of surplus countries in the Eurozone crisis are developed against the backdrop of 272 historical surplus episodes in 61 countries and are specifically compared with those outside the monetary union and with those in the EMS crisis. Similarly to their deficit counterparts, the surplus countries in the Eurozone were in the “misery corner,” where they faced high costs to both external and internal adjustment. The vulnerability profiles indicate why they acquiesced to bailout packages for deficit countries, but only after a difficult and lengthy political struggle.

Distributive Conflict and Interest Group Preferences in Surplus Countries

A key characteristic of the Eurozone crisis is that the burden of adjustment was carried almost exclusively by crisis countries. Surplus countries did not contribute to the necessary rebalancing, even though internal adjustment likely would have reduced some of the pressure on deficit states. The chapter argues that surplus countries’ resistance to internal adjustment is rooted in domestic distributive struggles about the design of possible adjustment policies. To explore this argument, original survey data is leveraged from 357 economic interest groups from Germany, Austria, and the Netherlands and qualitative interviews with interest group representatives. The chapter shows that although there is general support for internal adjustment among economic interest groups, they disagree heavily about how exactly to achieve this goal. Together with a broad consensus to avoid a breakup of the Eurozone, the resulting deadlock turned interstate financing—such as bailouts to crisis countries—into a politically attractive strategy. Rather than being rooted only in ordoliberal ideology or export orientation, distributive conflicts thus contributed significantly to surplus countries’ resistance to adjust.

Putting the Eurozone Crisis Experience in Perspective

Much research has treated the Eurozone crisis as a sui generis event. Yet we can only examine exactly how the Eurozone crisis is distinct from other crises if we compare it to other, similar crises. This chapter therefore develops a comparative framework that allows for us to study the distributional trade-offs inherent in crisis management of a large set of crises, including the Eurozone crisis. It argues the relative costs of external vs. internal adjustment will shape crisis politics, including the willingness of these countries to accept harsh conditionality in return for external financial support. The chapter develops measures to compare national vulnerabilities to internal and external adjustment and analyzes the crisis responses for a sample of 142 crisis episodes that occurred in a sample of 122 countries between 1990 and 2014. Our analysis shows that the vulnerability profile is a useful tool for analyzing crisis responses across a wide variety of balance-of-payments (BOP) crises. It also demonstrates that the Eurozone crisis is unusual because all crisis countries were located in the “misery corner”: Deficit country vulnerabilities to both internal and external adjustments were exceptionally high, and vulnerabilities frequently increased over the course of the crisis. In such a setting, quick and decisive crisis solutions are hard to find.

Introduction

Why did the Eurozone crisis prove so difficult to resolve? Why were adjustment burdens distributed so unevenly and why did no country leave the Eurozone? Who supported and opposed different policy options and how did the distributive struggles both within countries and between countries shape crisis politics? This introductory chapter lays out the main research questions and puzzles motivating this book. It provides an overview about the trajectory of the crisis and highlights the unusual characteristics of the crisis, most notably the unequal distribution of crisis resolution costs between deficit-debtor and surplus-creditor countries in the Eurozone. It then presents the policy options available to policymakers in both crisis countries mired by debt and balance of payments problems, as well as surplus-creditor countries characterized by large current account surpluses. The chapter then presents a brief overview of the book’s main argument that societies’ and political actors’ vulnerability profiles play an important role in shaping crisis policies and politics. The chapter concludes with an outlook and brief summary of the book’s individual chapters and a discussion of the book’s contributions to research on the Eurozone crisis, crisis politics, and the role of trade-offs in policymaking more generally.