Liberal intergovernmentalism and the euro area crisis

ABSTRACT

Liberal intergovernmentalism explains the politics to cope with the euro area crisis by the constellation of national preferences and bargaining power and by institutional choices designed to commit euro area countries credibly to the currency union. National preferences resulted from high negative interdependence in the euro area and the fiscal position of its member states: a common preference for the preservation of the euro was accompanied by divergent preferences regarding the distribution of adjustment costs. These mixed motives constituted a ‘chicken game’ situation characterized by hard intergovernmental bargaining and brinkmanship. Whereas negotiations produced a co-operative solution averting the breakdown of the euro area and strengthening the credibility of member state commitments, asymmetrical interdependence resulted in a burden-sharing and institutional design that reflected German preferences predominantly.

KEY WORDS:

• Euro area crisis
• European Union
• institutional reform
• integration theory
• liberal intergovernmentalism

ACKNOWLEDGEMENTS

For comments on earlier versions of this contribution, I thank members of the European Politics research group at ETH Zurich, the editors of the special issue and two anonymous reviewers.

Notes

1 Moravcsik has not provided a published LI interpretation or explanation of the crisis and its outcomes so far. Moravcsik (2012) is a current affairs commentary mainly analysing the roots of the crisis and discussing the adequacy of the reform steps taken to solve it.

2 I use north and south as convenient shortcuts even though Ireland is not geographically in the south.

3 Compare the scenarios in Straubhaar (2011: 30–1) and The Economist, 26 May 2012, 26–7.

4 http://www.theguardian.com/business/2010/feb/15/will-greece-leave-euro, 15 February 2010.

5 http://www.faz.net/aktuell/wirtschaft/eurokrise/im-gespraech-wolfgang-schaeuble-erst-die-strafe-dann-der-fonds-1954060-p2.html, 24 March 2010.

6 http://www.tagesschau.de/inland/griechenland678.html, 3 May 2010; http://www.stern.de/politik/ausland/schaeuble-verteidigt-griechenland-hilfe-es-geht-um-die-stabilitaet-des-euro-raums-1562349.html, 29 April 2010.

7 http://www.wolfgang-schaeuble.de/index.php?id=37&textid=1380&page=1, 27 March 2010.

8 http://www.faz.net/aktuell/wirtschaft/eurokrise/im-gespraech-wolfgang-schaeuble-erst-die-strafe-dann-der-fonds-1954060-p2.html, 24 March 2010.

9 http://www.stern.de/politik/deutschland/griechenland-krise-schaeuble-will-tempo-merkel-bremst-1561613.html, 26 April 2010.

10 http://www.ft.com/intl/cms/s/0/db2dd602-2914-11df-972b-00144feabdc0.html#axzz2r26Tgv00, 6 March 2010.

11 http://www.20minutes.fr/economie/401218-comment-france-peut-preter-milliards-a-grece, 29 April 2010.

12 http://www.angela-merkel.de/page/103_686.htm.

13 http://www.lemonde.fr/economie/article/2012/07/31/hollande-et-monti-determines-a-tout-faire-pour-consolider-la-zone-euro_1740722_3234.html, 31 July 2012.

14 http://www.zeit.de/politik/ausland/2010-03/eu-gipfel-hilfe-griechenland, 22 March 2010.

15 http://www.faz.net/aktuell/wirtschaft/eurokrise/schuldenkrise-deutschland-hilft-den-griechen-wenn-der-iwf-hilft-1950816.html, 25 March 2010.

16 http://www.faz.net/aktuell/wirtschaft/eurokrise/bundesregierung-taeglich-eine-neue-haltung-zu-griechenland-1956003.html, 21 March 2010; http://www.faz.net/aktuell/wirtschaft/eurokrise/im-gespraech-wolfgang-schaeuble-erst-die-strafe-dann-der-fonds-1954060-p2.html, 24 March 2010.

17 I thank one of the reviewers for alerting me to this point.

18 LI does not follow any formal game-theoretic assumptions, but its rationalist underpinnings are compatible with such an analysis. I do not present a formal game-theoretic analysis of the crisis, but use the basic intuition of the chicken game heuristically to point to the dynamics of the bargaining situation.

19 See http://www.euractiv.de/finanzen-und-wachstum/artikel/merkels-ultima-ratio-rauswurf-aus-euro-zone-002866, 18 March 2010; http://www.euractiv.de/europa-2020-und-reformen/artikel/merkels-neues-ultima-ratio-milliarden-fr-griechenland-002895, 25 March 2010.

20 http://www.theguardian.com/world/2010/may/14/nicolas-sarkozy-threat-greece-row-angela-merkel; http://www.theguardian.com/business/2010/may/14/nicolas-sarkozy-angela-merkel-euro-crisis-summit, 14 May 2010.

21 http://www.theguardian.com/world/2010/dec/03/angela-merkel-germany-abandon-euro, 3 December 2010.

22 http://www.telegraph.co.uk/finance/financialcrisis/8139167/Eurozone-debt-crisis-EU-officials-sent-to-Ireland.html, 17 November 2010.

23 http://www.nytimes.com/2012/06/10/business/global/spain-moves-closer-to-bailout-of-banks.html?pagewanted=all, 9 June 2012.

24 http://www.economist.com/blogs/charlemagne/2013/03/cyprus-bail-out, 25 March 2013.

25 Spiegel 2014; http://www.reuters.com/article/2011/11/03/us-g-idUSTRE7A20E920111103.

26 http://www.theguardian.com/business/2012/jun/28/eurozone-crisis-live-summit-brussels, 28 June 2012.

27 ‘EU leaders give green light to tweak treaty’, http://euobserver.com/institutional/31154, 28 October 2010.

Additional information

Biographical note

Frank Schimmelfennig is professor of European politics at ETH Zurich, Center for Comparative and International Studies.