The economics and politics of the Euro crisis

This article addresses puzzles raised by the Euro crisis: why was EMU established with limited institutional capacities, where do the roots of the crisis lie, how can the response to the crisis be explained, and what are its implications for European integration? It explores how prevailing economic doctrines conditioned the institutional shape of the single currency and locates the roots of the crisis in an institutional asymmetry grounded in national varieties of capitalism, which saw political economies organised to operate export-led growth models joined to others accustomed to demand-led growth. The response to the crisis is reviewed and explained in terms of limitations in European institutions, divergent economic doctrines and the boundaries of European solidarity. Proposed solutions to the crisis based on deflation or reflation are assessed from a varieties of capitalism perspective and the implications for European integration reviewed.