A structural-institutional explanation of the eurozone crisis

This chapter presents an argument about the underlying reasons for the persistent economic troubles in the Eurozone based on the two different and divergent growth models in the Eurozone’s member states: the export-oriented, skill-intensive, coordinated model of the northern and continental welfare economies and the demand-driven model with strong public sector unions in southern Europe. The chapter then argues that the interactions between macroeconomic policies and national institutions render policies that are appropriate for southern Europe dysfunctional for northern Europe, and vice versa. Is goes on to discuss different reform scenarios for the Eurozone, emphasizing that all reforms come at a considerable political cost, as the same political-economic institutions that would have to be reformed have strong stakes in the status quo in both political economy models. As there are no political incentives for structural change in either model, crises will persist.

Duke Scholars

Author David Soskice Political Science