Probing the Resilience of the Single Currency: Can the ‚European Stability Mechanism’ Cope with Socioeconomic Diversity?

The sovereign debt crisis in the Eurozone has revealed and politicised structural divergence and cultural diversity among its member states, notably regarding stability cultures, economic competitiveness and debt sustainability. For ensuring European monetary unity amidst variety, Eurozone leaders have opted against deepening integration through redistributing from stronger to weaker members (“Euro-bonds” or a common “debt redemption fund”). Instead, new mechanisms were set up to accommodate difference through “conditionality” in the shadow of sanctions, in the extreme case forcing “time-out” on non-complying creditor states. Following this rules-based approach, the European Stability Mechanism provides financial assistance to Eurozone countries in risk of bankruptcy in exchange for multi-annual fiscal adjustment and structural reform programs. Can this approach accommodate the diversity of Eurozone countries and ensure the resilience of the common currency? Under what conditions may it fail, i.e. leading to member country exit and disintegration? To answer this, we first review the international and European political economic debate to identify the ideas on which the ESM paradigm is premised (‘one-size-fits-all’; conception of economic development etc.) and why these are arguably flawed. Then we explore these contending claims against evidence about structural and cultural patterns and dynamics of divergence vs. convergence from the three “program countries” (Greece, Portugal, Ireland) compared to the Eurozone as a whole over the past five years. The aim is to discern ways of increasing the resilience of the single currency through developing the ESM into a process better able of coping with diversity and difference.