The Political Economy of the Euro Crisis

• DOI: 10.1177/0010414016633227
• Author: Mark Copelovitch,Stefanie Walter,Jeffry Frieden
• Published date: 01 June 2016
• Date: 01 June 2016
• Subject Matter: Articles

Comparative Political Studies

2016, Vol. 49(7) 811 –840

© The Author(s) 2016

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DOI: 10.1177/0010414016633227

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Article

The Political Economy

of the Euro Crisis

Mark Copelovitch1, Jeffry Frieden2,

and Stefanie Walter3

Abstract

This article introduces the special issue on the political economy of the Euro

crisis, which aims to improve our understanding of the causes, consequences,

and implications of the highly unusual nature of this crisis: a financial crisis

among developed countries within a supranational monetary union. The

article provides a brief chronology of the crisis, discusses its underlying

causes, and reviews the ways in which comparative and international political

economy can help us understand the crisis. The article then discusses the

individual and collective contributions of the articles in the special issue and

discusses possible future research paths on the political economy of the

Euro crisis. We conclude with a brief discussion of how a political economy

perspective informs our understanding of the long-term prospects for the

Eurozone and European integration.

Keywords

economic policy, EU politics and policy, globalization, political economy,

Eurozone crisis, European Monetary Union, financial crisis

The Euro crisis has developed into the most serious economic and political

crisis in the history of the European Union (EU). By 2016, 9 years after the

outbreak of the global financial crisis in 2007, economic activity in the EU

1University of Wisconsin–Madison, WI, USA

2Harvard University, Cambridge, MA, USA

3University of Zurich, Switzerland

Corresponding Author:

Mark Copelovitch, University of Wisconsin–Madison, 201A North Hall, 1050 Bascom Mall,

Madison, WI 53706, USA.

Email: copelovitch@wisc.edu

633227CPSXXX10.1177/0010414016633227Comparative Political StudiesCopelovitch et al.

research-article2016

812 Comparative Political Studies 49(7)

and the Eurozone was still below its pre-crisis level. At this point, the joint

effects of the global financial crisis and the Euro crisis have caused more last-

ing economic damage in Europe than the Great Depression of the 1930s

(Crafts, 2013). The political consequences have also been severe. Conflict

among EU member states has threatened the progress of European integra-

tion, whereas polarization and unrest have unsettled domestic politics in a

host of European countries. The crisis has indeed brought into question the

very nature and future of European integration generally, and of monetary

integration specifically.

To date, there has been substantial economic analysis of the crisis in the

Eurozone, which has recently culminated in the emergence of a widely shared

consensus on its causes (Baldwin et al., 2015). However, economists often

fail to appreciate the large role that politics has played in the run-up, evolu-

tion, and attempts at resolution of the Euro crisis. The typical economic

approach has been to note that the Eurozone is not an optimal currency area,1

and to subsequently conclude that the long-term survival of the Eurozone

requires the creation of a set of institutions to act as substitutes—such as fis-

cal union, banking union, and/or the establishment of a larger, permanent

transfer mechanism to replace the European Stability Mechanism (e.g., De

Grauwe, 2013; Lane, 2012; Pisani-Ferry, 2012). This economic approach is a

useful starting point, as it highlights the structural problems underlying the

Euro crisis and hindering its resolution: a lack of labor mobility, asymmetric

vulnerability to shocks, and the absence of sufficient fiscal stabilizers.

Nevertheless, this approach is not grounded in a realistic appraisal of what

policies aimed at resolving the crisis are politically feasible, and it has led

most economists to focus on the optimal design of a fiscal or banking union

necessary to ensure the survival of the Eurozone, rather than on developing

proposals articulating how the Eurozone can become more viable under

existing political constraints.

Not surprisingly, political scientists’ analyses of the Euro crisis have

focused more closely on examining and understanding the domestic and

international politics of the crisis. These analyses have provided valuable

insights into the effects of the crisis on important issues such as European

integration (e.g., the special issues edited by Ioannou, Leblond, & Niemann,

2015; Menz & Smith, 2013; Tosun, Wetzel, & Zapryanova, 2014), voting

behavior and public opinion (e.g., the special issues edited by Bellucci, Lobo,

& Lewis-Beck, 2012; Usherwood & Startin, 2013), the welfare state (e.g., the

special issue edited by Heins & de la Porte, 2015), and democratic politics

more generally (e.g., Cramme & Hobolt, 2014). Yet, just as economists often

do not pay enough attention to politics, most political scientists have tended

to discount the economic constraints, trade-offs, and dynamics underlying