Distributional Conflicts and the Politics of Adjustment in the Eurozone Crisis

The euro crisis has turned into the most serious challenge the European Union has ever had to face. Although the causes of the crisis are increasingly well understood, the politics of the crisis are not. This project aims at shedding light on three important puzzles that existing research has not yet been able to resolve. First, why have some governments been able to implement far-reaching reforms, whereas reform progress has been rather spotty in other crisis countries? Second, why have some countries seen serious political turmoil, while others have experienced less public and political opposition? And finally, why have surplus countries been willing to bail out deficit countries, but have varied in their willingness to adjust their own economic policies in an effort the ease the adjustment burden on the South? The project argues that these differences can be explained by the variation in societies’ vulnerabilities to different types of policy responses to the crisis. The argument builds on the insight that the euro crisis is, at its root, a balance-of-payments crisis. The imbalances that underlie such crises can be resolved either through significant economic policy adjustments both in the (peripheral) deficit or the (northern) surplus countries, or be addressed by providing external financing to deficit countries. I argue that the resulting distributive struggles surrounding the politics of the euro crisis in surplus and deficit countries are distinct but related, and should therefore be analyzed in a unified framework. The chances for swift and substantial adjustment are enhanced when politically influential interest groups exhibit a low vulnerability to at least one type of adjustment. In contrast, in contexts where significant parts of society are vulnerable to any adjustment, crisis politics is very contentious. Surplus countries with such a vulnerability profile attempt to push most of the adjustment burden onto deficit countries. In return, they are willing to provide external financing to deficit countries, but this generates conflict about on who should bear this financial burden. Since deficit countries are in a weaker position to push adjustment costs onto surplus countries, the distributional conflicts there revolve around how the cost of adjustment is to be distributed among different societal groups.
Empirically, the project examines how vulnerability profiles affect domestic crisis politics and policies on two levels of analysis, the interest-group and the national level. It uses a mixed-methods research design that combines two sets of qualitative comparative case studies of the domestic and international politics of the euro crisis in surplus and deficit countries, respectively, with a quantitative analysis of national vulnerability profiles and crisis politics in a wider set of countries. The overarching goal of the project is to generate an encompassing picture of the distributional politics of the euro crisis and a better understanding of the constraints under which European policymakers operate in their attempts to solve the crisis.