Varieties of Capitalism and the Euro Crisis

Abstract:  This article examines the role that varieties of capitalism play in the euro crisis, and considers the implications of this perspective for the origins of the crisis, its progression, and its effects. It associates the institutional deficiencies of arrangements for governing the single currency with prevailing economic doctrines of the 1990s.  Such doctrines, however, ignored durable differences in the organization of the European political economies in favour of convergence theories inspired by supply-side economies. The author argues that the roots of the crisis lie not in asymmetrical economic shocks as some predicted. The causes, rather, are to be found in institutional asymmetries that saw northern European economies, well-equipped to operate export-led growth models that offered economic success within such a union, joined to southern economies accustomed to demand-led growth models that could not be operated successfully without the capacity to devalue. The article characterizes the crisis itself as tripartite crises of confidence, debt, and growth; briefly explores the response to date; and then considers the continuing dilemmas it poses for the European Union. It argues that a failure to acknowledge the role varieties of capitalism play in Europe has contributed to the slow response to the crisis of confidence and ineffective response to the growth crisis.