Managing the Tensions Arising from Market Inclusion and Monetary Exclusion: A Comparative Analysis

The Eurozone crisis has highlighted the tensions arising from membership in EMU without an effective political and fiscal union. However, it has overshadowed the fundamental structural tensions in the economies that stand outside the EMU, but are included in the European Single Market (ESM). Operating an independent currency within the ESM creates tensions. These tensions create policy problems particularly with asset price booms and currency fluctuations. The engineers of the ESM set the expectation that members would integrate monetary policy under a single currency. However, many signatories of the European Single Act have kept their own independent currency. The social, political and economic consequences of this fragmentation have received insufficient attention in European scholarship. This paper analyses, compares and contrasts how this fragmentation has come to shape these economies, but also the contingencies in the construction of “policy routines” developed in relation to their historically specific political economies. The countries managing this tension are diverse and their experiences of crisis-tendencies and crises are too. The paper looks at a number of cases: three EFTA economies Iceland, Norway and Switzerland; and, six EU economies: the United Kingdom, Sweden, Poland, the Czech Republic, Bulgaria and Hungary. It considers: what unique policy routines and institutions have emerged across these cases; how this fragmentation and national policy responses have come to shape European integration; whether fragmentation has added to or alleviated crisis tendencies in Europe; whether it has contributed to uneven development in Europe; and, how fragmentation has impacted on Europe in world economy?