The Politics of the Eurozone Crisis in Global Comparison: Choosing Crisis Resolution Strategies

This paper brings the politics of the eurozone crisis in the broader context of balance-of-payment crises. We focus on the trade-offs that politicians face when responding to crises and analyze the costs of adjusting internally with austerity measures relative to the costs of devaluing the currency (including exiting the eurozone). We develop measures for these types of costs and show that they explain policy responses to a large number of episodes of speculative pressure. Importantly, we show that the policy trade-offs in the eurozone favored internal adjustment above and beyond the mere costs of currency union break-up and that the timing of costs prevented a cohesive coalition between the crisis countries in opposition to the surplus countries in the North.