The Eurozone and political economic institutions

This review sets out a recently developed comparative political economy literature on the Eurozone, with a basis in both varieties of capitalism and modern macroeconomics. It contrasts the export-oriented northern European skill-intensive coordinated market economies with coordinated wage-bargaining, with southern European demand-driven economies and strong public sector unions; and it analyses the Eurozone as an on-going grouping of sovereign states, each with strong concerns to remain within the Eurozone but in principle with an exit option. It draws four conclusions: that the Eurozone functioned impressively (as well as, and similarly to, the advanced economies outside the Eurozone) during its ‘dual growth’ period from inception to the Eurocrisis; that its deflationary preference reflects the rational choice of the export-oriented members, not an irrational rejection of Keynesianism; that neither the origins of the Eurozone nor its trajectory were ‘politically-driven’ towards European integration as a functionalist analysis might have suggested; and that, despite the absence of flexible core labour markets suggested by the optimum currency area literature and the set of institutions in the US dollar system, there has been little Eurozone generated institution-building (as opposed to a generalised move to flexibilisation of non-permanent employment across the advanced world). The analysis concludes by explaining why euro-exit is within the range of rational bargaining outcomes.