ABSTRACT
Of the multiple narratives EU policymakers could have chosen at the onset of the euro crisis, why did austerity and structural reform win out over other plausible cures for member states’ problems? Arguably, sovereign debt pooling or more federalized economic governance would have been a
solution to member states’ national deficits and competitiveness woes. The austerity-cum-reform narrative fueled the insistence by Northern lenders and politicians for policies that overwhelmingly emphasized the slashing of public spending in the periphery, joined with politically tough reforms meant to make markets more efficient for future business and investment. Swift implementation of those policies, the argument went, would produce both fiscal discipline and labor market flexibility, and the crisis would gradually go away (Matthijs 2014a, 211-4). Yet the winning narrative and subsequent set of policy prescriptions is
puzzling since the ‘fiscal sin’ explanation only really worked in the case of Greece and did not fit the facts on the ground in Ireland, Portugal, or Spain, let alone Italy. Plausible systemic counter-narratives of what went wrong included the Eurozone’s lack of supporting economic governance institutions, or the pressures of persistent trade and financial imbalances, yet neither of those would end up driving the debate, nor the solutions offered. Most strikingly, by far, the most potentially efficacious alternative solution to the euro’s woes — the introduction and joint issuance of a common debt instrument or ‘Eurobond’ — received only lukewarm support. To understand this puzzle, we draw on the emerging literature on the
sociology of knowledge to argue that the response to the euro crisis was heavily informed by broader social logics. These social logics constructed the problem, and the solution, toward ordoliberal (austerity combined with the adherence to strict fiscal rules) and neoliberal (emphasis on structural reform) ideas. The dominant analysis of the crisis was shaped by academics, think tanks, private and public sector actors, specifically German economists and powerful business and financial interests, whose ideas had long underwritten the euro’s institutional design at Maastricht and Amsterdam during the euro’s formative decade. Berlin, Frankfurt, and Brussels early on fashioned the crisis into a ‘normative’ morality tale of Southern profligacy vs. Northern thrift. Rather than correct the institutional flaws in the euro’s design and build
the necessary fiscal, financial, and political unions, leaders doubled down on a story of Northern Saints and Southern Sinners. Political efforts focused on a strengthened Stability and Growth Pact with quasi-constitutional balanced budget rules, a European Central Bank still mainly focused on price stability and only conditionally acting as a lender of last resort, a half-house banking union without common deposit insurance or a Europewide fiscal backstop, and a ‘tough love’ combination of austerity and reform in the Eurozone periphery. These wholesale reforms have not yet succeeded and may never do so given political pushback and institutional stickiness of the varieties of capitalism found across Europe (Hall 2014). Yet, the emphasis on fiscal austerity over economic governance has already been highly consequential for the everyday lives of Southern Europeans. Austerity policies have slowed economic growth and exacerbated unemployment in the wake of the financial crisis and have fueled a host of antiEurope parties across the European Union (Matthijs 2014b). These effects were put on display during the Eurosceptic assault on Brussels in the May 2014 elections for a new European Parliament. Voters openly questioned
230 Matthias Matthijs and Kathleen McNamara
the EU’s democratic legitimacy and underscored their fundamental lack of trust in EU institutions. Our argument is that the dominant euro crisis narrative, and its deleteri-
ous effects, was not the logical result of inexorable functionalist pressures that dictated austerity as the only answer to the Eurozone’s ills. Instead, the putative answers to the crisis arose out of deeply entrenched social structures that informed economic debates, privileging certain definitions and solutions over others. These social structures were generated out of the interaction of academic theorists with a broader world of bankers, investors, government officials, and others with high stakes in the outcome of the euro crisis. As such, the euro crisis narrative both demonstrates the permeability of the internal/external divide between these worlds, and maps the role of power infusing those social structures. The adoption of the path of austerity, or alternatively the building of a
set of European level governance institutions, had major and divergent distributional consequences. As such, the ideas were informed by, but not directly a product of, the various material interests at play. As the editors of this special issue remind us, the field of economics is ‘a discipline that helped to develop not only economic theories promoting harmonization of the single market and the establishment of the EMU, but also participating in their legitimation and sometimes gaining from their establishment in practice’ (Adler-Nissen and Kropp 2015). When the tsunami of the global financial crisis revealed the shortcomings in Europe’s EMU, once again the academic and policy worlds collided to shift the debate in one particular direction. To make our case, the article proceeds as follows. We first draw on the
editors’ introduction and the volume’s overall themes to frame the entanglement of economic policy-making in theoretical terms and illustrate how academic ideas both serve and structure reality. We then briefly assess how the euro problem was defined early on and how the debate was structured, in both Berlin and Brussels, toward fiscal austerity and domestic reforms. Our empirical evaluation then takes up Adler-Nissen and Kropp’s call for analytic symmetry by examining why the alternative solution of a Eurobond failed to take hold, with its advocates unable to change minds in Berlin. Mapping the fate of the Eurobond proposals allows us to trace the entanglement of economic policy-making and parse out the ways in which social realities are shaped to make particular policy choices seem inevitable — when they in fact are the product of social processes. We then conclude with a discussion of what the euro crisis’ theory effect portends for the study of European integration.
