International Political Economy Series Series Editor: Timothy M. Shaw, Visiting Professor, University of Massachusetts Boston, USA and Emeritus Professor, University of London, UK The global political economy is flux as a series of cumulative crises impacts its organization and governance. The IPE series has tracked its development in both analysis and structure over the last three decades. It has always had a concentra- tion on the global South. Now the South increasingly challenges the North as the centre of development, also reflected in a growing number of submissions and publications on indebted Eurozone economies in Southern Europe. An indispensable resource for scholars and researchers, the series examines a variety of capitalisms and connections by focusing on emerging economies, companies and sectors, debates and policies. It informs diverse policy communi- ties as the established trans-Atlantic North declines and ‘the rest’, especially the BRICS, rise. Titles include: Daniel Dăianu, Giorgio Basevi, Carlo D’Adda and Rajeesh Kumar ( editors ) THE EUROZONE CRISIS AND THE FUTURE OF EUROPE The Political Economy of Further Integration and Governance Karen E. Young THE POLITICAL ECONOMY OF ENERGY, FINANCE AND SECURITY IN THE UNITED ARAB EMIRATES Between the Majilis and the Market Monique Taylor THE CHINESE STATE, OIL AND ENERGY SECURITY Benedicte Bull, Fulvio Castellacci and Yuri Kasahara BUSINESS GROUPS AND TRANSNATIONAL CAPITALISM IN CENTRAL AMERICA Economic and Political Strategies Leila Simona Talani THE ARAB SPRING IN THE GLOBAL POLITICAL ECONOMY Andreas Nölke ( editor ) MULTINATIONAL CORPORATIONS FROM EMERGING MARKETS State Capitalism 3.0 Roshen Hendrickson PROMOTING U.S. INVESTMENT IN SUB-SAHARAN AFRICA Bhumitra Chakma SOUTH ASIA IN TRANSITION Democracy, Political Economy and Security Greig Charnock, Thomas Purcell and Ramon Ribera-Fumaz THE LIMITS TO CAPITAL IN SPAIN Crisis and Revolt in the European South Felipe Amin Filomeno MONSANTO AND INTELLECTUAL PROPERTY IN SOUTH AMERICA Eirikur Bergmann ICELAND AND THE INTERNATIONAL FINANCIAL CRISIS Boom, Bust and Recovery Yildiz Atasoy ( editor ) GLOBAL ECONOMIC CRISIS AND THE POLITICS OF DIVERSITY Gabriel Siles-Brügge CONSTRUCTING EUROPEAN UNION TRADE POLICY A Global Idea of Europe Jewellord Singh and France Bourgouin ( editors ) RESOURCE GOVERNANCE AND DEVELOPMENTAL STATES IN THE GLOBAL SOUTH Critical International Political Economy Perspectives Tan Tai Yong and Md Mizanur Rahman ( editors ) DIASPORA ENGAGEMENT AND DEVELOPMENT IN SOUTH ASIA Leila Simona Talani, Alexander Clarkson and Ramon Pachedo Pardo ( editors ) DIRTY CITIES Towards a Political Economy of the Underground in Global Cities Matthew Louis Bishop THE POLITICAL ECONOMY OF CARIBBEAN DEVELOPMENT Xiaoming Huang ( editor ) MODERN ECONOMIC DEVELOPMENT IN JAPAN AND CHINA Developmentalism, Capitalism and the World Economic System Bonnie K. Campbell ( editor ) MODES OF GOVERNANCE AND REVENUE FLOWS IN AFRICAN MINING Gopinath Pillai ( editor ) THE POLITICAL ECONOMY OF SOUTH ASIAN DIASPORA Patterns of Socio-Economic Influence Rachel K. Brickner ( editor ) MIGRATION, GLOBALIZATION AND THE STATE Juanita Elias and Samanthi Gunawardana ( editors ) THE GLOBAL POLITICAL ECONOMY OF THE HOUSEHOLD IN ASIA Tony Heron PATHWAYS FROM PREFERENTIAL TRADE The Politics of Trade Adjustment in Africa, the Caribbean and Pacific David J. Hornsby RISK REGULATION, SCIENCE AND INTERESTS IN TRANSATLANTIC TRADE CONFLICTS Yang Jiang CHINA’S POLICYMAKING FOR REGIONAL ECONOMIC COOPERATION International Political Economy Series Series Standing Order ISBN 978–0–333–71708–0 hardcover 978–0–333–71110–1 paperback You can receive future titles in this series as they are published by placing a standing order. 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Customer Services Department, Macmillan Distribution Ltd, Houndmills, Basingstoke, Hampshire RG21 6XS, England The Eurozone Crisis and the Future of Europe The Political Economy of Further Integration and Governance Edited by Daniel Dăianu Professor of Economics, National School of Political and Administrative Studies, Bucharest, Romania Giorgio Basevi Professor Emeritus of International Economics, University of Bologna, Italy Carlo D’Adda Professor Emeritus of Economics, University of Bologna, Italy and Rajeesh Kumar Researcher, School of International Studies, Jawaharlal Nehru University, India Editorial matter and selection © Daniel Da˘ianu, Giorgio Basevi, Carlo D’Adda and Rajeesh Kumar 2014 Individual chapters © Respective authors 2014 Softcover reprint of the hardcovre 1st edition 2014 978-1-137-35674-1 All rights reserved. No reproduction, copy or transmission of this publication may be made without written permission. No portion of this publication may be reproduced, copied or transmitted save with written permission or in accordance with the provisions of the Copyright, Designs and Patents Act 1988, or under the terms of any licence permitting limited copying issued by the Copyright Licensing Agency, Saffron House, 6–10 Kirby Street, London EC1N 8TS. Any person who does any unauthorized act in relation to this publication may be liable to criminal prosecution and civil claims for damages. The authors have asserted their rights to be identified as the authors of this work in accordance with the Copyright, Designs and Patents Act 1988. First published 2014 by PALGRAVE MACMILLAN Palgrave Macmillan in the UK is an imprint of Macmillan Publishers Limited, registered in England, company number 785998, of Houndmills, Basingstoke, Hampshire RG21 6XS. Palgrave Macmillan in the US is a division of St Martin’s Press LLC, 175 Fifth Avenue, New York, NY 10010. Palgrave Macmillan is the global academic imprint of the above companies and has companies and representatives throughout the world. Palgrave® and Macmillan® are registered trademarks in the United States, the United Kingdom, Europe and other countries ISBN 978-1-349-47060-0 ISBN 978-1-137-35675-8 (eBook) DOI 10.1057/9781137356758 This book is printed on paper suitable for recycling and made from fully managed and sustained forest sources. Logging, pulping and manufacturing processes are expected to conform to the environmental regulations of the country of origin. A catalogue record for this book is available from the British Library. Library of Congress Cataloging-in-Publication Data The Eurozone crisis and the future of Europe : the political economy of further integration and governance / Daniel Da˘ianu, Professor of Economics, National School of Political and Administrative Studies, Bucharest, Romania; Carlo D’Adda, Professor Emeritus of Economics, University of Bologna, Italy; Giorgio Basevi, Professor Emeritus of International Economics, University of Bologna, Italy; Rajeesh Kumar, Research Fellow, School of International Studies, New Delhi, India. pages cm. 1. European Union countries – Economic conditions – 21st century. 2. Global Financial Crisis, 2008–2009 – Political aspects – European Union countries. 3. Financial crises – European Union countries. 4. Eurozone. 5. Monetary policy – European Union countries. 6. European Union countries – Economic policy. I. Da˘ianu, Daniel, author, editor of compilation. HC240.E894 2014 337.1942—dc23 2014019305 Contents List of Figures vii List of Tables ix Acknowledgements xi Notes on Contributors xii 1 Introduction 1 Daniel Dăianu and Rajeesh Kumar 2 Overview: Analytics of the Euro Area Crisis 9 Giorgio Basevi and Carlo D’Adda Part I Economic Imbalances and the Euro Area Crisis 3 The Diversity of Debt Crises in Europe 25 Jerome L. Stein 4 European Sovereign Debt Crisis and the Euro 40 Julius Horváth and Martin Šuster 5 Economic Policies and the Debt/GDP Constraint: The European Challenge 60 Radu Vranceanu 6 Current Account Imbalances in the Eurozone: Causes, Remedies and the Role of the ECB 83 Karlhans Sauernheimer Part II Crisis Management in the Euro Area: The Interplay between Politics and Economics 7 The Euro Crisis and German Primacy 109 Jonathan Story 8 The Power of Ordoliberalism in the Eurozone Crisis Management 126 Brigitte Young v vi Contents 9 Italy and the Euro 138 Carlo D’Adda 10 Turning a Small Problem into Catastrophe: The Case of Greece 154 Kunibert Raffer 11 The Eurozone Crisis: A Perspective from and Impact on Asia 170 Pradumna B. Rana and Michael R. Blomenhofer Part III The Euro Area: Looking into the Future 12 The EMU Is No One-Way-Street: Back to the Roots! 191 Bodo Herzog 13 Changing Welfare States and the Euro Crisis 213 Anton Hemerijck 14 The Long-term Implications of the Euro Crisis for European Integration: A Deeper Union or Fragmentation? 239 Francesco Nicoli and Fabian Zuleeg 15 The Euro Area: Repairing a Flawed Design and Its Policy Arrangements 259 Daniel Dăianu 16 Afterword: Summing Up: The Crisis and Europe’s Future 279 Rajeesh Kumar and Daniel Dăianu References 284 Index 301 List of Figures 3.1 SI and CA curves 35 3.2 Populist scenario 36 4.1 Long-term interest rates on Euro area sovereign debt (%), 1995–2007 and 2008–2012 42 4.2 Fiscal performance in selected Euro area countries 43 4.3 Evolution of net international investment position and credit 44 4.4 Current account in selected Euro area countries 45 4.5 Unit labour costs and productivity 49 5.1 Average inflation rate in the Euro area 63 5.2 Euro area (changing composition) 10-year Government benchmark bond yield 63 5.3 Government gross public debt and primary fiscal balance in industrial