One-size-fits-some! Capitalist diversity, sectoral interests and monetary policy in the euro area

ABSTRACT

In the comparative capitalism literature, the European Central Bank's (ECB's) ‘one-size-fits-none’ monetary policy played a key role in the widening of trade imbalances in the euro area (EA) by being overly restrictive for the region's coordinated market economies (CMEs) and overly expansionary for the region's mixed market economies (MMEs). According to this literature, wage setting institutions mediated how the ECB's monetary policy re-distributed resources between the traded and non-traded sectors in these varieties of capitalism. By examining three separate transmission channels of the ECB's monetary policies (wage and price setting in labor and product markets; nominal exchange rate of the euro; funding costs and bank credit), this paper goes beyond the traditional emphasis on wage setting institutions and draws attention to those institutions that underpin the non-price competitiveness of traded sectors. Overall, the paper explains how the institutional infrastructure of the CMEs bolstered the adaptability of their traded sectors to the ECB's single monetary policy and its three transmission mechanisms – both during the pre-crisis era of widening imbalances and the period of asymmetrical trade rebalancing since the outbreak of the euro crisis.

KEYWORDS:

• Monetary policy
• ECB
• comparative capitalisms
• euro crisis
• sectoral interests
• coordinated market economies
• mixed market economies

Disclosure statement

No potential conflict of interest was reported by the author.

Notes

1. While the Eurogroup (the EA's minister of finances) is allowed to ‘conclude formal agreements on an exchange rate system for the euro in relation to non-Community currencies’ and ‘formulate general orientations for exchange rate policy’ (Article 219TFEU), its exchange rate instructions may not undermine the ECB's anti-inflation mandate. Therefore, the ECB retains de fact control over the euro's nominal exchange rate.

2. Germany's fiscal deficits breached the GSP's 3% ceiling in almost every year between 2001 and 2007.

3. Author's calculation from the EU KLEMS Database.

4. Borrowing costs declined more in peripheral countries (113 basis points) than in core countries (50 basis points) after the ECB announced its credit easing package in June 2014 (ECB 2015).

Additional information

Notes on contributors

Mattias Vermeiren

Mattias Vermeiren is an assistant professor of International Political Economy at the Ghent Institute for International Studies (Ghent University). He is the author of Power and Imbalances in the Global Monetary System: A Comparative Capitalism Perspective (Palgrave 2014) and co-author of Rising Powers and Economic Crisis in the Euro Area (Palgrave 2016).