The Political and Economic Dynamics of the Eurozone Crisis The Political and Economic Dynamics of the Eurozone Crisis Edited by James A Caporaso and Martin Rhodes Great Clarendon Street, Oxford, OX2 6DP, United Kingdom Oxford University Press is a department of the University of Oxford It furthers the University’s objective of excellence in research, scholarship, and education by publishing worldwide Oxford is a registered trade mark of Oxford University Press in the UK and in certain other countries © Oxford University Press 2016 The moral rights of the authors have been asserted First Edition published in 2016 Impression: All rights reserved No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, without the prior permission in writing of Oxford University Press, or as expressly permitted by law, by licence or under terms agreed with the appropriate reprographics rights organization Enquiries concerning reproduction outside the scope of the above should be sent to the Rights Department, Oxford University Press, at the address above You must not circulate this work in any other form and you must impose this same condition on any acquirer Published in the United States of America by Oxford University Press 198 Madison Avenue, New York, NY 10016, United States of America British Library Cataloguing in Publication Data Data available Library of Congress Control Number: 2015955648 ISBN 978–0–19–875573–9 Printed in Great Britain by Clays Ltd, St Ives plc Links to third party websites are provided by Oxford in good faith and for information only Oxford disclaims any responsibility for the materials contained in any third party website referenced in this work To Ann and Rachel Acknowledgments A book project such as ours inevitably involves a lot of support, both institutional and personal Our primary thanks are owed to the authors themselves since they were the critics and shapers of our internal debate Three conferences provided the venue for presentation of drafts of our chapters The first was held at the University of Denver in October 2012 and was supported by the University of Denver and by the European Union Center of Excellence at the University of Colorado, Boulder The second workshop was held in Seattle in November 2013 and was funded by the European Union Center of Excellence and Center for West European Studies at the University of Washington Those two meetings provided an opportunity for vigorous criticism and feedback and resulted in revisions which were presented at the meetings of the Council of European Studies (CES) in Washington, DC, in March 2014 We would also like to thank Peter Hall and Wade Jacoby for their incisive comments on our project’s papers as discussants at the CES conference Apart from the contributors, our greatest debt goes to the European Union and its delegation in Washington, DC, for funding the Denver and Seattle workshops and to the staffs at the EU Centers of Excellence at the University of Colorado (UC) at Boulder and the University of Washington (UW) In particular, we want to single out Phil Shekleton and Eva Dunn at the Seattle campus and Felicia Martinez and Elina Avanessova Day at the UC Boulder campus Their assistance was also critical in securing new Jean Monnet funding for the UW and University of Denver in 2015, EU support that will continue to strengthen European Union and Transatlantic studies in the United States Contents List of Figures List of Tables and Box List of Contributors Introduction: The Political and Economic Dynamics of the Eurozone Crisis James A Caporaso and Martin Rhodes “States Choose but Not Under Circumstances of Their Own Making”: A New Interpretation of the Integration Debate in Light of the European Financial Crisis James A Caporaso and Min-hyung Kim xi xiii xv 15 The Euro’s Twin Challenges: Experience and Lessons Bergljot Barkbu, Barry Eichengreen, and Ashoka Mody 48 Competitiveness and the European Financial Crisis Erik Jones 79 “United We Fall”: The Eurozone’s Silent Balance of Payments Crisis in Comparison with Previous Ones Benedicta Marzinotto 100 Searching Under the Lamppost: The Evolution of Fiscal Surveillance Deborah Mabbett and Waltraud Schelkle 122 Fiscal Governance and Fiscal Outcomes Under EMU before and after the Crisis Mark Hallerberg 145 The ECB as a Strategic Actor: Central Banking in a Politically Fragmented Monetary Union C Randall Henning 167 International in Life, National in Death?: Banking Nationalism on the Road to Banking Union Rachel A Epstein and Martin Rhodes 200 Index of Authors Aliber, R 33 Armingeon, K 10 Åslund, A 240, 245–6, 248 Jachtenfuchs, M 5, 43, 123, 261 Joerges, C 266–7 Jonung, L 22–3 Baccaro, L 10 Baerg, N 145, 148 Barro, R 50 Bastasin, C 3, 8, 179, 183–5 Bayoumi, T 24 Ben-David, D 50 Bertola, G 25 Bini Smaghi, L 176, 180, 187, 190–1, 205, 209 Blanchard, O 52–3, 56, 134 Blinder, A S 36, 167–8 Botín, E 213 Buiter, W 176 Kelemen, R D 139, 141 Kenen, P 50 Kindleberger, C 33, 102, 114 Kirby, P 248–9, 251 Krugman, P 10, 104, 123, 152 Crum, B 275 Curtin, D 268–9 De Grauwe, P 3, 106, 138, 181, 185, 209, 252 Dornbusch, R 21, 105 Drea, E 22–3 Feldstein, Martin 23 Frieden, J 19, 23, 201, 203–4, 229 Gabrisch, H 93 Gandrud, C 160 Genschel, P 5, 43, 123, 261, 280 Gordon, R J 56 Goyal, R 51 Goyer, M 209 Gros, D 31, 33, 74, 181, 185, 205, 222–3 Hall, P A 2, 40–1, 214 Hancké, R 2, 81–5 Hechter, M 27 Honohan, P 49, 74, 160, 239, 248–9 Issing, O 33, 145, 167, 263 Laeven, L 107, 151, 160 Larch, M 129 Legrain, P 79, 274 McNamara, K 21, 152–3, 169 Marx, K 15 Mayer, T 181, 189 Moravcsik, A 6–7, 16–17, 21, 274 Münchau, W 10, 189, 223 Mundell, R A 23–4, 46, 50, 237 Obstfeld, M 104, 118, 253 O’Mahony, M 53 O’Toole, F 250 Paterson, W 9, 40, 277 Pisani-Ferry, J 3–4, 102, 112, 114 Praet, P 87 Quah, D 50 Regling, K 49, 74, 239, 249 Reinhart, C 105, 107 Rogoff, K S 105, 107 Rogowski, R 201, 203–4 Sachs, J 25 Sala-i-Martin, X 25, 50, 60 Sanchez, J L D 92 Sapir, A 3, 38, 41, 101–2, 112–14 Sargent, T J 176 Schimmelfennig, F 44 Schwarzer, D 4, 40, 139 Shambaugh, J C Index of Authors Sinn, H.-W 152 Soltwedel, R 24 Staehr, K 93 Strauch, R 158 Taylor, G 249 Teo, T K 139, 141 Valdivielso del Real, R 209 Valencia, F 107, 151, 160 Varoudakis, A 92 284 Vaubel, R 20–1 Véron, N 187–8, 209, 214, 218 von Hagen, J 149, 156, 158 Wallace, N 176, 261 Walter, S 153, 248 Watson, M 49, 74, 239, 249 Wolf, M 153, 190, 192 Wyplosz, C 93, 136, 138–9, 155–6, 185 Yläoutinen, S 158, 160–1 Subject Index Introductory Note References such as ‘178–9’ indicate (not necessarily continuous) discussion of a topic across a range of pages Wherever possible in the case of topics with many references, these have either been divided into sub-topics or only the most significant discussions of the topic are listed Because the entire work is about the ‘Eurozone crisis’, the use of this term (and certain others which occur constantly throughout the book) as an entry point has been restricted Information will be found under the corresponding detailed topics accountability 242, 246 democratic 235, 238 accounting fiscal 124, 130 growth 53–4, 56 adjustment 55, 80, 96, 115, 128, 153, 235, 239 competitive 97–8 cyclical 124, 130, 133–4 economic 113, 169, 180, 237 programs 10, 113, 116, 124, 173, 188 ailing banks 206, 220 allies 41, 203, 217, 219, 224–6 AQR (Asset Quality Review) 201, 218, 221, 224 Asmussen, J 173–4, 187, 190 assessments 125, 127, 131, 135, 175, 182, 266, 270 comprehensive 40, 68, 174, 218 convergence 109, 112 asset prices 33, 107–8, 132 Asset Quality Review, see AQR assets 68–9, 73, 105, 107, 132, 172, 175, 212 impaired 131, 137 assistance, financial 10, 101–6, 110, 112–16, 119, 173, 273 asymmetric shocks 22, 25, 50 austerians 9, 151, 153 austerity 10, 25, 123, 126, 133–4, 139, 152–3, 164 delusion 10, 123, 125, 140 measures 129, 152, 247 programs 219, 247 Austria 31–2, 53, 57, 67, 71–2, 107, 111, 208–11 banks 211 National Bank 211 automatic stabilizers 108–9, 134 autonomy, monetary policy 234, 236–7, 244, 251–3 backtracking 180–1, 184 bad banks 131, 136 bailout expenditure 132–3 bailout funds 126–7, 159, 214, 219 bailout packages 36–7, 250 bailouts 3, 160–1, 215, 218, 222, 245, 248–50, 253 bank 124, 130, 139–40, 200, 209–10 balance of payments 88–90, 98 crises 23, 100–20 and capital mobility 104–6 balance of trade 34–6, 82 balance sheets 68, 70, 72–3, 107, 174–5, 180–1, 185, 205 banks 73 balanced budgets 116, 127, 152, 182, 186 balances, budget 147–50, 152, 161–3 bank bailouts 124, 130, 139–40, 200, 209–10 bank failures 164, 221–2 bank lending 28, 49, 68, 71, 137 Bank of England 101, 118, 168, 172, 174, 175, 179, 191 bank recapitalization 107, 110, 115–16, 129–30, 137–8, 140, 216, 218–20 bank recovery 203, 220–3 Bank Recovery and Resolution Directive (BRRD) 220–1 bank resolution 75, 187, 222, 225 banking 1, 5, 68–75, 100, 105, 202, 206–7, 215 crises 3, 65, 75–6, 84, 107–8, 150–1, 158, 160 in Eurozone banking sector 72–4 cross-border exposure and lending boom 70–2 Subject Index banking (cont.) groups, multinational 212–13 leverage and bank funding 68–70 nationalism 200–26 rising costs 203–14 on road to banking union 207–14 protectionism 203–7, 210 regulations 38, 49 regulatory response 74–5 supervision 10, 138, 193, 203, 210, 214–15, 218, 224 unified 187–8 systems 100, 103, 108, 110, 130–1, 137, 214–15, 217–18 union 9, 38, 49–51, 74–6, 136–7, 173–4, 187–8, 271 building 214–23 banks 70–5, 136–8, 168–76, 185–8, 200–15, 217–25, 241, 243–5 ailing 206, 220 Austria 211 bad 131, 136 balance sheets 73 central 88–9, 91, 167–93, 241–2, 247, 252, 263, 265 commercial 68, 72, 107–8, 110 controlled 205, 210 Eurozone 68–72, 74–5, 110, 217–18 foreign 101, 108, 110, 208–9, 211–12 foreign ownership 201, 207, 209, 212 German 3, 217, 222, 224–5 Iceland 241, 253 Icelandic 241, 253 Italian 185 oriented 202, 212 private 170–1, 175, 185 regional 217 Spain 137, 173, 209, 219 United States 68–9, 72 bargaining 17–18 interstate 16, 20 wage 81–4, 182 bargains 7, 17, 26, 168, 177, 185, 192 Barnier, Michel 221–2 Basel II 51, 62 beggar yourself policies 101, 103, 105 beggar-your-neighbor devaluations 103–4 Belgium 2, 53, 57, 67, 71–2, 80, 208–9, 211 beliefs 6, 23, 153–4, 251–2 Berlin 20, 174, 183, 187, 189, 220, 274 Berlusconi, Silvio 126, 182–6 bilateral loans 113, 179 bond markets 139, 201 bonds 28–9, 62–4, 171, 180–3, 191, 240 sovereign 28–9, 62, 64, 110, 176, 178–80, 185–7, 249 booms 29–30, 32–3, 111 286 brakes, debt 9, 127, 155, 158, 277 Bretton Woods system 101–4, 106, 116–19, 226, 235, 263 Britain, see United Kingdom BRRD (Bank Recovery and Resolution Directive) 220–1 Brussels 2, 25, 145–6, 159, 173, 179, 267, 274 budget balances 147–50, 152, 161–3 budget deficits 26, 42, 50, 145, 154, 156, 171 budget processes 156, 158, 163–4 budget surpluses 3, 150, 158 budgetary policies 8–9, 258–60, 262, 267, 270, 275 budgets 42–3, 113, 124, 129, 147, 154–7, 161, 250 balanced 116, 127, 152, 182, 186 national 42, 139 painful 247 Bundesbank 21, 188–90, 225, 263 candidate countries 24 capacity 38, 42–3, 102, 104, 107, 237, 241, 243 capital 28, 30, 62, 68–9, 87–8, 100–2, 110, 117 foreign 88, 101, 106 private 106, 110, 112 capital account 79, 84–5, 88–9, 98 capital controls 100, 103, 105–6, 118, 238, 244–5, 252 capital flows 1, 3, 36, 39, 73, 100–1, 106, 151–2 capital markets 3, 11, 102, 113, 188, 240 capital mobility 17, 101, 103–5, 118, 203–5, 212, 237 and balance of payments crises 104–6 capital services 54 capital transfer 132 causal mechanism 80–1, 84, 98 CEBS (Committee of European Banking Supervisors) 74–5 Central and East European countries 158, 161 central banks 88–9, 91, 167–93, 241–2, 247, 252, 263, 265 governors 153, 184, 241, 249, 252 independent 147, 235, 265 centralization 146, 201, 203, 212, 214–23, 265, 274 monetary policy 258–60, 265, 268, 272 centralized supervision 200–1, 203–4, 207, 212, 216 change 37, 56, 63, 87, 149–51, 160–3, 200–1, 247 treaty 217, 221 Chicken, game of 169, 176–7 choices 11, 15–16, 27, 44, 234, 236, 238, 250–1 cleavages 11 Subject Index coalitions 9, 157–8, 161, 215, 219, 224–5, 247, 251 grand 127, 158 Cold War 20, 260–1 collateral 43, 62, 112, 171–4, 191 eligible 172–3 collective action problems 7–8, 104–5, 114, 225 collective insurance 101–2, 106, 118 commercial banks 68, 72, 107–8, 110 Commission 4–7, 39–40, 123–30, 140–1, 213–18, 220–5, 266–70, 275 members 123, 134, 140, 272 powers 6–7, 268 president 274–5 commitments 116, 123, 177, 179, 182, 214, 216, 252 Committee of European Banking Supervisors (CEBS) 74–5 common interest rate 28 common monetary policy 49, 136, 235, 265 common pool resource (CPR) 154, 156 common supervision 50–1, 188 community, economic 264, 271, 275 community method 4–5, 260, 262, 279 companies 131, 233 comparative political economy 214 competence 39–40, 43, 221 competition 10, 65, 82, 202, 209 unfair 116, 119 competitive adjustment 97–8 competitiveness 1–3, 24, 31, 36–7, 49, 64–5, 67, 79–98 differences 3, 30–1 Greece 85–90 indicators 37, 80, 93, 98 loss of 2, 64, 66, 80–1, 83, 94–5 national 82, 98 completion of the single market 19–20, 210 compliance 127, 130, 134, 138, 212, 224, 269, 278 comprehensiveness 130–1 compromises 220, 222, 225, 258–61, 265–6, 268–9, 272, 274 constitutional 259–60, 267, 270, 279 economic 259, 265–8, 272 institutional 258, 260–2, 268–9 political 258, 262–5, 269–72 concessions 5, 140, 176, 189, 191, 226 conditionality 101–2, 110, 116–17, 127, 137, 218 strict 114, 187 conflicts 18, 190, 201–3, 211, 225 consolidation, fiscal 62, 134, 179–80, 182 constituencies 154, 156, 159, 235 constitutional compromises 259–60, 267, 270, 279 constitutional disorder 268–74 constitutional reform 182, 246 constitutions 116, 155, 186, 203, 242, 246, 250, 262 economic 264, 266–7 Germany 127, 218 constraints 15, 43, 81, 83, 118, 249, 251 consumer prices 30–2, 37 harmonized indices 31–2, 176, 193 consumers 204, 233, 243 consumption 2, 24, 29, 33, 80, 106, 108 contagion 37, 39, 103, 118, 179, 201, 206, 251 risks 103, 113 contingency clauses 117–18 contingent liabilities 64, 163 contracts 157, 160–2 fiscal 147, 156–9, 161, 163 contradictions 201–2, 205–6 control 39, 41, 82–3, 134–6, 235, 237, 265, 273–4 domestic 138, 200–1, 207 Foreign Bank 208 convergence 22, 24, 27–8, 32, 48–51, 65–6, 81, 84 assessment 109, 112 criteria 20–1, 32 in Eurozone 57–62 and growth 49, 51–68 reviving 65–8 process 49, 52, 81 real 48–9, 62, 64, 87 convertibility 118 risks 64, 101, 103, 105–6, 114, 117–19 cooperation 113, 118, 177, 186, 193, 270 close 202, 217 economic 175, 264, 268 enhanced 270 coordination 74, 169, 173, 176, 186, 190, 265–6, 269 policy 7, 125, 173, 267, 274 voluntary 38, 258, 267, 272–4, 278 core 2, 10–11, 41, 66–7, 70–1, 108, 274 and periphery 2, 11, 27–8, 36, 41, 71, 85 core inflation 67–8 costs 28–9, 156, 159–62, 203–6, 220–1, 234–5, 239–40, 251–2 of banking sector protectionism 204, 206 economic 44, 234, 240 exogenous 201, 203 fiscal 108, 110, 139–40, 160, 168 labor 2, 34, 64, 80, 82–6, 91–3, 96, 98 political 235, 238, 241, 251–3 transaction 24, 233 wage 64–5 Council 5–6, 125–7, 148, 173, 222, 260–2, 266, 269–70; see also ECOFIN countercyclical policy 10, 129, 139 287 Subject Index CPR (common pool resource) 154, 156 credibility 105–6, 118, 206, 224 credit 3, 27–8, 33, 72, 108, 111, 116, 211 boom 31, 74 cheap 28–9, 31 expansion 27–30 growth 28, 68, 71–2 risks 72, 101, 103, 110, 117, 185 creditor countries 2, 9, 103–4, 116, 277–8 creditor governments 176, 186, 190 creditors 11, 116, 119, 176–7, 215, 220, 274, 277 crisis countries 110, 114, 116, 169, 179, 185, 189 crisis dynamics 6, 80 crisis management 5, 8, 38, 40, 112, 114, 123, 125 criteria convergence 20–1, 32 macroeconomic 263, 265–6 cross-border exposure 70–1, 110 cross-border liabilities 9, 214 cross-border ownership 103, 118 current account balances 2, 37, 82, 84, 87, 89, 93, 95–6 deficits 2, 70, 80, 84, 87–90, 101, 104–6, 112 imbalances 42, 81, 84 performance 84–5, 88–9, 93, 95 cyclical adjustment 124, 130, 133–4 Cyprus 52, 73, 151, 162, 173, 208 Deauville declaration 180–1 debt 2–3, 127–31, 137–8, 150–3, 159–61, 163–4, 215, 252–3 brakes 9, 127, 155, 158, 277 crisis 9, 75, 100, 126 excessive 127–8 external 43, 104–7, 114 general government 131, 137, 148 gross 133, 141, 148, 151, 153, 161, 163 levels 128, 147–8, 160 public 24, 64, 84, 110, 113, 119–20, 133, 136 sovereign 62, 159, 164, 172–3, 181, 188, 204, 271 sustainability 67, 75, 123, 192 debtor countries 103, 215 debtor member states 277–8 debtors 11, 18, 169, 176–7, 215, 272, 274 decentralization 258–60, 265 decision-making 7, 18, 36, 50, 156, 181, 187, 268–9 models 274, 276 power 260, 262, 273 process 18, 273, 275 regimes 260, 262, 268 default risks 64, 102, 105 defeasance structures 136–7 288 deficit countries 70, 73, 84, 101, 116 deficits 89, 91–2, 122, 124–8, 130–4, 137–8, 147, 151–2 budget 26, 42, 50, 145, 154, 156, 171 current account 2, 70, 80, 84, 87–90, 101, 104–6, 112 excessive 50, 125, 127, 129, 147–8, 150, 153, 266 fiscal 64, 132, 249 government 137, 141, 175, 266 structural 128, 136 deflation 192–3 delegation 7, 127, 156–7, 160–2 delegation countries 159 delegation index 162–3 democratic accountability 235, 238 Denmark 93, 113, 160, 208, 263–5 dependent variables 161–2, 203 Deposit Guarantee Mechanism (DGM) 271 deposits 69–70, 128, 185, 220–2, 248 depreciation 24, 80, 86, 153, 238, 240–1 devaluation 102, 104–5, 116, 238, 240, 244–5, 248, 251–2 beggar-your-neighbor 103–4 devaluations, internal 205–6, 239 Dew-Becker, I 56 DGM (Deposit Guarantee Mechanism) 271 differentiation 64, 108 institutional 260, 276 disciplinarians 122–5, 140 discipline, fiscal 9, 29, 39, 123, 125, 139, 146–7, 154 discretion 129, 140, 150, 171, 235, 277 dispersion 60–1, 95, 149 distributional indicators 239 divergence 36, 50, 57–60, 63, 65, 82, 84, 163 diversification 24, 210 domestic control 138, 200–1, 203, 207, 218, 265 domestic fiscal governance 154, 163 domestic price inflation 84, 86 domestic prices 33, 86, 204, 245 dominance, fiscal 168, 176, 192 Draghi, M 64, 77, 103, 106, 173–4, 182, 185–7, 207, 220–1 dynamics, interstate 259, 274 dynamics of crisis 1–12 Eastern Europe 160, 207–8, 211–12 EBA (European Banking Authority) 75, 224, 271 EBF (European Banking Federation) 213 EBU (European Banking Union) 38, 201, 203–4, 207, 212, 214, 225 ECB (European Central Bank) 5, 7–10, 39–40, 119–20, 136–8, 201–6, 213–20, 224–5 and Germany 188–90 Subject Index Governing Council 170–2, 174, 179, 183, 186, 189–91 monitoring 225, 271 officials 168, 184, 191 responses 170–5 as strategic actor 167–93 strategic interactions 169, 171, 177–88, 190–2 supervision 217–18 tools and rules 170–5 ECJ (European Court of Justice) 5–6, 261, 266–7, 275, 278 ECOFIN (Economic and Financial Affairs Council) 113, 148, 213, 216–17, 222, 262, 266–7, 269; see also Council economic adjustment 113, 169, 180, 237 economic analyses 238–40 Economic and Financial Affairs Council, see ECOFIN Economic and Monetary Union, see EMU economic community 264, 271, 275 economic compromise 259, 265–8, 272–4 economic constitutions 264, 266–7 economic cooperation 175, 264, 268 economic costs 44, 234, 240 economic crises 33, 41, 126, 211, 246, 251 economic elites 243 economic governance 123, 148, 167, 173, 263, 268–9, 277 economic growth 28, 76, 108, 135, 150, 156, 162, 168–9 economic integration 18, 40–1, 81, 100, 178, 204, 264–5 economic performance 33, 65, 81, 97, 133 economic policy 164, 238, 262, 265–6, 277–8 economic processes 32, 36, 39–40 economic shocks 22, 200, 204, 234 economic variables 158, 161–2 economies, European 2, 27, 84, 211, 225 economists 22–3, 87, 122 academic 20, 22–3 liberal political 201, 203 ECU (European Currency Unit) 263 EDP (Excessive Deficit Procedures) 125, 127–8, 147, 239, 266, 272 EERP (European Economic Recovery Plan) 125–6 effectiveness 114–15, 160, 261 efficiencies 42, 53, 66, 200, 203–4, 233 EFSF (European Financial Stability Facility) 113, 115–16, 172–3, 178–81, 216, 218, 249, 259 EFSM (European Financial Stabilization Mechanism) 113 EFTA (European Free Trade Association) 264 elections 157–9, 161, 187, 242, 247, 250–1, 274–5 electorate 251–2 elites 241, 244, 252 economic 243 financial 242, 249, 253 political 242, 247 emergency liquidity assistance/support 107, 119, 171, 173 emigration 28, 238, 240, 245, 248, 252 employers 83, 87, 97 employment 22, 56, 65–6, 83, 91–2, 94, 135, 240 levels 235, 240, 252 manufacturing 91–2, 94–5, 97 EMS (European Monetary System) 16, 226, 263 EMU (Economic and Monetary Union) 19–26, 41–2, 102–4, 113, 145–9, 258–60, 262–5, 267–71 central role of states and intergovernmental conferences 21–2 common interest rate 28 and competitiveness 31–4 expansion of credit 27–30 labor markets in first phase 23–6 labor productivity and consumer prices 30–1 phase one 19–26 phase three 36–8 phase two 26–36 political costs 234–5, 238 political origins 20–1 views of US academic economists 22–3 endogeneity 17, 36, 44, 64, 135 endogenous theory of integration 17–18 enforcement 37, 123, 127, 139–40, 155, 157, 269 EP, see European Parliament ERM (Exchange Rate Mechanism) 26, 263 ESA (European System of Accounts) 131, 239 ESM (European Stability Mechanism) 5, 114–16, 127, 129, 216, 218–20, 269–70, 273 and recapitalization of banks 218–20 Treaty 102, 113–16, 186, 273 Estonia 52, 208 EU-15 85, 158, 160–1 EU–IMF programs 151, 154, 161, 163 euro, membership 123, 236–7, 247, 252 euro area, see Eurozone Euro Summit 167, 179, 185, 191, 269, 271, 273, 275 Eurogroup 169, 172–3, 177–9, 182, 184–5, 187, 268–9, 275–6 European Banking Authority, see EBA European Banking Federation, see EBF European Banking Union, see EBU European Central Bank, see ECB European Commission 93–5, 113, 147–8, 154–6, 160–2, 211–12, 214–16, 220–3 289 Subject Index European Communities 33, 264 European Council 4–5, 113–15, 186–8, 219–21, 260–2, 269, 271, 273–6 European Court of Justice, see ECJ European Currency Unit (ECU) 263 European Economic Recovery Plan (EERP) 125–6 European Financial Stability Facility, see EFSF European Financial Stabilization Mechanism (EFSM) 113 European Free Trade Association, see EFTA European Monetary System, see EMS European Parliament (EP) 5–6, 215, 221, 223–4, 260–2, 269–70, 272, 275 European Stability Mechanism, see ESM European System of Accounts, see ESA European Systemic Risk Board 172 Europeanization 275 Eurostat 29–32, 34, 65, 128, 130, 132–3, 136–7, 140 Eurozone 50–9, 70–4, 92–5, 103–6, 168–72, 177–81, 187–93, 276–8 banks 68–72, 74–5, 110, 217–18 convergence in 57–62 core, see core countries 56, 58–63, 65–6, 68, 100, 106, 128, 172 finance ministers 219–20 government bond spreads 63 governments 113–16, 139, 141, 169, 178, 182, 186, 191 leaders 172–3, 269 periphery, see periphery Excessive Deficit Procedures, see EDP excessive deficits 50, 125, 127, 129, 147–8, 150, 153, 266 exchange of information 75 Exchange Rate Mechanism (ERM) 26, 263 exchange rates 21, 26–7, 39, 81, 100, 236 fixed 80, 101, 104, 112, 237, 245 nominal 80, 82, 86, 238 ex-EFTA countries 264, 269, 275 exogenous costs 201, 203 expansion, fiscal 9–10, 123, 139, 151 expansion of credit 27–30 expenditure rule 128 export performance 82, 84, 87–8, 92, 97, 152 export prices 83–4 exports 2, 26, 33, 82–3, 87–8, 96, 103, 107 real 87, 91–2 exposures 49, 101, 108, 114, 184, 211 cross-border 70–1, 110 large 68 external accounts 2, 24 external debt 43, 104–12, 114 external shocks 107–8 290 Fazio, Antonio 207 Federal Reserve 139, 168–9, 172, 174, 175, 180, 191 feedback loop, negative 108, 110 Fianna Fáil 249, 251 finance ministers 134, 138, 153, 157, 159, 163–4, 220, 222–3 Germany 188, 223, 279 strong 147, 156–7, 161, 163 financial assistance 10, 101–6, 110, 119, 173, 273 political economy of 112–17 financial elites 242, 249, 253 financial instability 113, 117, 210, 224, 277 financial integration 24, 100, 104–5, 112–13, 117 Financial Market Authority (FMA) 211 financial markets 28, 36, 79–80, 98, 101, 181, 186, 191 financial regulators 138, 208, 249 financial sanctions 128 financial stability 36, 68, 102, 104, 106, 114, 169, 172 Financial Supervisory Authority (FSA) 241–2 financial support 113–14, 117, 132, 172–3, 177, 182 Financial Times 10, 211–13, 219 financing 89, 92, 101, 112, 115, 203, 211, 215 conditions 171, 178 monetary 171, 181, 189, 191 non-monetary 118 requirements 89–90 Finland 53, 57, 67, 71–2, 150, 153, 158, 215–16 fiscal accounting 124, 130 fiscal authorities 136, 176, 180, 190–1 Fiscal Compact 116, 127, 154, 158, 173, 259, 269–73, 276 fiscal consolidation 62, 134, 179–80, 182 fiscal contracts 147, 156–9, 161, 163 fiscal costs 108, 110, 139–40, 160, 168 fiscal councils 154, 157–8 fiscal deficits 64, 132, 249 fiscal discipline 9, 29, 39, 123, 125, 139, 146–7, 154 fiscal dominance 168, 176, 192 fiscal expansion 9–10, 123, 139, 151 fiscal governance 9, 123–4, 127, 134, 136, 145–63, 177 domestic 154, 163 European framework 147–8 institutions 160, 164 role 154–60 weak 159, 164 fiscal impulse 108–9 fiscal indicators 124, 130 fiscal integration 24, 141 fiscal multipliers 134–5, 140 Subject Index fiscal outcomes 108, 145–63 explaining 148–60 fiscal performance 32, 146, 152, 156, 158–9, 163 fiscal policy 2–5, 42–3, 122–3, 134–6, 145–6, 162–4, 168, 176 fiscal positions 10, 122, 128–9, 131–2, 140, 206 fiscal powers 24, 274 fiscal reforms 158, 182 fiscal resources 8, 131, 169, 178 fiscal responsibility 138, 189 fiscal restraint 125, 127–8, 135 fiscal rules 127–8, 130, 134, 136–9, 141, 146, 155, 185–6 fiscal space 129, 140, 148, 158 fiscal surveillance in a depression 133–6 evolution 122–41 process 124–6, 136 reforms 123, 141 fiscal targets 134, 182–3 fixed exchange rates 80, 101, 104, 112, 237, 245 flexible exchange rates 24, 153 flexible labor markets 79–80 flows, capital 1, 3, 36, 39, 73, 100–1, 106, 151–2 FMA (Financial Market Authority) 211 Foreign Bank Control 208 foreign banks 101, 108, 110, 208–9, 211–12 foreign capital 88, 101, 106 foreign ownership 207, 209, 212 foreign takeovers 202, 209 fragmentation, political 169, 190 France 20–2, 31–2, 71–3, 150–1, 208–9, 211–12, 236, 265–6 banks 49, 223 FSA (Financial Supervisory Authority) 241–2 funding 49, 69–70, 88, 116, 201, 225 GDP (gross domestic product) 86–8, 91–2, 107–11, 125–6, 132–5, 147–51, 161, 266 forecasts 128, 135 per capita 57, 60–1 GEMU (Genuine Economic and Monetary Union) 164, 219, 268 general government 109, 124, 130–3, 136–7, 141, 147–8 balance 109, 147 debt 131, 137, 148 Germany 8–10, 20–3, 27–35, 86–7, 150–3, 187–8, 215–19, 224–6 banks 3, 217, 222, 224–5 Bundesbank 21, 188–90, 225, 263 Constitution 127, 218 and ECB 188–90 European 263, 274 finance ministers 188, 223, 279 government 3, 145, 216–18, 220–1, 277 Landesbanken 217–18 real effective exchange rates (REERs) 33–4 reunification 20–1, 152, 262–3 GFS (Government Finance Statistics) 131 GIIPS (Greece, Ireland, Italy, Portugal and Spain) 27–8, 30–1, 33–6, 41 Gilmore, Éamon 250–1 global financial crisis 149–50, 154, 167, 170 gold peg 103, 105, 118 Gold Standard 101, 103–6, 117–19 governance 4, 7, 157, 159, 161, 163, 186, 267 economic 123, 148, 167, 173, 263, 268–9, 277 fiscal, see fiscal governance statistical 10, 128 Governing Council 170–2, 174, 179, 183, 186, 189–91 government bonds 4, 103, 119, 138, 158, 171, 175, 179–80 Initial 63 market 108, 110 government debt 43, 101, 110, 112, 133, 137, 266 general 131, 137, 148 government deficits, see deficits governments 128–34, 136–41, 155–9, 167–9, 177–82, 184–93, 246–51, 260–2 elected 123, 239, 250 German 3, 145, 216–18, 220–1, 277 multi-party coalition 157, 161 new 158, 184, 187, 242–3, 247, 251 one-party 157, 161, 164 sitting 242, 246–7, 250 Spanish 137, 185 grand bargains 16–18, 274 grand coalitions 127, 158 Greece 27–33, 57–9, 62–5, 70–3, 96–7, 106–8, 113–15, 172–3 competitiveness 85–90 Grexit 187 gross debt 133, 141, 148, 151, 153, 161, 163 gross domestic product, see GDP growth 27–8, 49–51, 53–4, 68, 82, 91–2, 134–5, 150 accounting 53–4, 56 and convergence 49, 51–68 reviving 65–8 crisis 3, 75 export-led 97, 235 negative 3, 147–8 performance 52 rates 24, 30, 49, 54, 238 real export 91–2, 97 291 Subject Index harmonization 22, 25, 75, 212–13, 221 harmonized indices of consumer prices 31–2, 176, 193 harmonized long-term interest rates 109, 112 Hartz Reforms 34 heads of state and government 21, 26, 40, 216, 260, 262 hegemons 9, 101, 105, 119 housing prices 2, 43 Iceland 11, 97, 233, 236–47, 249–53, 264 banks 241, 253 elites 241, 244 FSA (Financial Supervisory Authority) 241–2 ideology 123, 146, 152–4, 163 economic 10, 234 idiosyncratic shocks 130, 134 illiquid markets 100, 112 imbalances 1, 27, 36–7, 41, 49, 73, 102, 106 intra-Eurozone 68, 73 structural 26, 42 IMF (International Monetary Fund) 101–5, 113, 115–17, 150, 153–5, 240–1, 245, 248–50 impaired assets 131, 137 implementation 154, 157, 206, 216, 266, 268, 270, 274 importers 88, 103 imports 2, 88, 96, 151 incentives 17, 19, 81, 83, 122, 155–6, 158–9, 176–7 inconsistency, institutional 103–4, 117, 119–20 incrementalism 6–7 indebtedness 79–80, 82 independent central banks 147, 235, 265 indicators 37, 49, 85, 90–3, 140–1, 151, 160, 178 distributional 239 fiscal 124, 130 Maastricht 133 inflation 21–2, 24, 26, 32, 36–7, 167, 190, 192 core 67–8 low 68, 193 price, see price inflation rates 2, 24, 31–2, 66, 147, 161, 238 wage 64, 82, 238 innovation 127–9 instability, financial 113, 117, 210, 224, 277 institutional architecture 41, 190 institutional compromise 258, 260–2, 268–9 institutional consistency of monetary regimes 117–20 institutional differentiation 260, 276 institutional drift, long-term 6, 276 institutional inconsistency 103–4, 117, 119–20 292 institutionalization 7, 16–17, 219, 274, 276 institutions 6–8, 16–17, 41–2, 161, 163–4, 261–2, 271–2, 274–5 intergovernmental 40, 260, 265, 273, 275, 278 political 18, 36, 40, 252 insurance 75, 103–4, 106, 116–20 collective 101–2, 106, 118 schemes 103–4, 118–19 integration 164, 203, 214, 260–2, 276 central role of states and intergovernmental conferences 21–2 debate 15–44 economic 18, 40–1, 81, 100, 178, 204, 264–5 endogenous theory 17–18 European financial crisis as test case 18–19 financial 24, 100, 104–5, 112–13, 117 fiscal 24, 141 labor markets in first phase 23–6 monetary 19, 26, 41, 81, 98, 258 phase one 19–26 phase three 36–8 phase two 26–36 process 16–21, 24, 26, 40–1, 44, 260–1, 267–8, 278–9 interbank lending 100, 172 interbank market 107, 205 interest rates 27–8, 43, 70, 72, 88, 115, 172–3, 189–90 common 28 long-term 24, 88–9 punitive 81, 113 intergovernmental agreements 222, 271 intergovernmental conferences 21, 39, 260 intergovernmental constitution 261–2, 268–9, 272 intergovernmental institutions 40, 260, 265, 273, 275, 278 intergovernmental union 258, 274–5, 278 intergovernmentalism 8, 19, 123, 214, 216, 222, 278 liberal 8, 15–18, 20, 38–9, 41, 44, 114, 274 interinstitutional dynamics 260, 279 internal devaluations 205–6, 239 internal market 21, 221, 262 policies 274–5 international capital markets 11, 188 International Monetary Fund, see IMF interstate bargaining 16, 20 interstate dynamics 259, 274 interventions 107–8, 130–2, 134, 138, 176, 184, 272, 278 intra-Eurozone imbalances 68, 73 Ireland 27–9, 31–3, 57–9, 90–3, 106–8, 149–53, 236–41, 248–52 Fianna Fáil 249, 251 voters 249–50, 273 Subject Index Italy 27, 29–33, 57–9, 63–5, 72–3, 90–3, 96–7, 208–12 government bonds 181, 184, 207 Japan 53, 80, 137, 159, 174, 175, 191 Juncker Commission 275, 278 KLEMS data 53–4 labor 24–6, 30, 56, 66, 87, 125, 168, 245 labor composition 54 labor costs 2, 34, 64, 80, 82–6, 91–3, 96, 98 real unit 85–6, 91–2 labor force participation 55, 57, 76 labor markets 3, 20, 22–3, 25–6, 32, 96 flexible 79–80 reforms 53, 66, 178, 253 labor mobility 22, 24, 50 labor participation 55–6, 66 labor productivity 30, 48, 50, 53–4, 64, 97 growth 54, 91–2 reversal in trends 53–7 labor-market reforms 2, 66 lag 70, 84, 86–8, 162 large exposures 68 Latvia 11, 151, 153, 233, 236–7, 239–41, 245–8, 252 leaders 12, 16–17, 21, 23, 38–9, 179–80, 184–6, 188 Euro area 172–3 political 12, 23, 26–7, 221 legal orders 260, 268–70, 272, 276, 278 legislative initiative 4, 260–1, 268 Lehman Brothers 3, 36, 41, 70, 172, 241, 246 lenders 32, 40, 117, 119, 126, 244, 251, 253 lending 72, 74, 102–3, 113–17, 130, 138, 205–6, 211 bank 28, 49, 68, 71, 137 boom 70, 72 capacity 36–7, 113, 173, 218 conditions 73, 114–15, 137 interbank 100, 172 Lenihan, Brian 248 lessons 42, 48, 129, 158, 236–7, 244, 253 leverage 16, 72, 76, 103, 115, 118 and bank funding 68–70 political 265 levies 221–2 liabilities 69–71, 73, 100, 106–7, 161, 163, 205, 210 contingent 64, 163 total 69–70 liberal intergovernmentalism, see LIG liberalization 28, 182, 202–3, 242 and rising costs of banking nationalism 203–14 uneven 204–7 LIG (liberal intergovernmentalism) 8, 15–18, 20, 38–9, 41, 44, 114, 274 liquidity 39, 101, 112, 119, 169, 171, 185, 191 emergency liquidity assistance/support 107, 119, 171, 173 operations 110, 168, 171, 175, 177 provision 73, 169, 178, 205 trap 134, 140 Lisbon Treaty 4, 249, 258–9, 262, 264–71, 274, 278–9 Lithuania 52, 151, 155, 208 loan agreements 126–7, 129 loans 28, 32, 114–15, 137, 224 bilateral 113, 179 long-term institutional drift 6, 276 long-term interest rates 24, 88–9 long-term refinancing operation, see LTROs loss of competitiveness 2, 64, 66, 80–1, 83, 94–5 LTROs (long-term refinancing operation) 9, 70, 73–4, 110, 171, 173, 185–6, 206 Luxembourg 53, 57–9, 63, 67, 71, 108, 111, 150 Maastricht indicators 133 Maastricht Treaty 57–60, 122, 130, 145, 147, 168, 260–4, 266–7 Macroeconomic Adjustment Programs (MAPs) 124, 129, 137, 173 macroeconomic criteria 263, 265–6 macroeconomic imbalance procedure (MIP) 37, 141 macroeconomic policies 65, 81 macroeconomic stabilization 38, 123–4, 130, 140 majority voting qualified 113, 214, 216 reverse 127–8, 141 manufacturing employment 91–2, 94–5, 97 manufacturing workers 87, 92, 94 MAPs (Macroeconomic Adjustment Programs) 124, 129, 137, 173 market prices 132, 239, 266 markets 62, 73, 83, 103, 106, 110, 115–16, 204–5 bond 139, 201 capital 3, 11, 102, 113, 188, 240 financial 28, 36, 79–80, 98, 101, 181, 186, 191 government bonds 108, 110 illiquid 100, 112 interbank 107, 205 primary 115, 187 secondary 126, 171, 176, 179, 182, 184, 218 medium-term financial assistance (MTFA) 113 Memoranda of Understanding (MOUs) 205 Merkel, Angela 3–4, 126, 179–80, 184, 187, 189, 218, 267 293 Subject Index MIP (macroeconomic imbalance procedure) 37, 141 Mitterrand, Franỗois 21, 236 mobility capital 17, 101, 103–5, 118, 203–5, 212, 237 labor 22, 24, 50 monetary adjustment, political costs 233–53 monetary dominance 176, 192 monetary financing 171, 181, 189, 191 monetary financing of government deficits 8, 126 monetary integration 19, 26, 41, 81, 98, 258 monetary policy 43–4, 130, 134, 139–40, 170–1, 175, 235, 265 autonomy 234, 236–7, 244 centralization 258–60, 265, 268, 272 common 49, 136, 235, 265 ineffectiveness 123–4, 130 monetary sovereignty 21, 100 monetary union, see EMU Monti, Mario 184 MOUs (Memoranda of Understanding) 205 MTFA (medium-term financial assistance) 113 MTO (medium term objective) 127–8 muddling through 6–7 multi-annual targets 156–8 multinational banking groups 212–13 multi-party coalition governments 157, 161 multipliers, fiscal 134–5, 140 mutualization 168, 187, 189, 203, 222–5 national central banks 81, 170–1, 190–1; see also entries on individual member states national control, see domestic control national currencies 24, 49, 205, 258, 263–4 national governments, see governments National Reform Programmes (NRPs) 146 national resolution authorities 75, 221–2, 271 national sovereignty 10, 42, 214, 225, 258, 261–2, 264, 274 national supervisors 51, 175, 217–18 nationalism, banking 200–26 negative feedback loop 108, 110 negative growth 3, 147–8 negotiations 16, 70, 147, 156, 184, 271, 274, 277 neo-functionalism, see NF Netherlands 31–2, 57–9, 63, 65–7, 71–2, 107–8, 132, 208–9 neutrality 130–1 NF (neo-functionalism) 6, 8, 15–18, 38, 41, 44 nominal convergence 48–9, 62–5 nominal exchange rates 80, 82, 86, 238 non-Eurozone member states 94, 150–1, 190, 276 northern Europe 27, 76, 95, 106–8, 110, 164 Norway 93, 264 NRPs (National Reform Programmes) 146 294 observers 50–2, 214–15, 222–3, 277 OCA (optimal currency areas) 4, 8, 22, 26, 50, 234 Oddsson, Davíð 242 OECD (Organization for Economic Cooperation and Development) 25, 66, 238–9, 243, 249 officials, elected 235–6, 241, 246, 249–50, 253 OLS Regressions 60 OMT (outright monetary transactions) 9, 64, 103, 119, 171, 173–4, 178, 187–9 one-party governments 157, 161, 164 optimal currency areas, see OCA opt-out member states 270–1, 278 Organization for Economic Cooperation and Development, see OECD output 33, 52–3, 57, 59, 66–7, 76, 87 growth 53, 76 outright monetary transactions, see OMT ownership cross-border 103, 118 public 131, 133 Parex Bank 245–6 parity 104, 118 participating countries 102, 104–5, 116, 118, 271 performance 84–6, 91, 94–5, 146, 150, 154 economic 33, 65, 81, 97, 133 export 82, 84, 87–8, 92, 97, 152 fiscal 32, 146, 152, 156, 158–9, 163 periphery 1–2, 10–11, 27–8, 31, 66–7, 70, 73–4, 85 and core 2, 11, 27–8, 36, 41, 71, 85 countries 66, 72, 91, 93–5, 97, 101, 215, 217 southern 19, 123, 185 permanent bailout fund 37, 127, 214 person 52–3, 168 policies 141, 153–4, 235–6, 238, 251–2, 261–2, 264–9, 273–4 countercyclical 10, 129, 139 fiscal 2–5, 42–3, 122–3, 134–6, 145–6, 162–4, 168, 176 macroeconomic 65, 81 monetary, see monetary policy regulatory 43, 51–2, 74 structural 66, 182 policy coordination 7, 125, 173, 267, 274 policy options 236–8, 241 policymakers 2, 49, 52, 98, 153, 155, 249, 252 policymaking 5–6, 216, 261–2, 268–9, 272, 278 political authorities 6–7, 169, 201, 203, 205, 207, 247, 277 political compromise 258, 262–5, 269–72 Subject Index political costs of monetary adjustment 233–53 of monetary union 234–8 political economy of financial assistance 112–17 political elites 242, 247 political fragmentation 169, 190 political institutions 18, 36, 40, 252 political leaders 12, 23, 26–7, 221 political responsibility 185, 188 political sovereignty 243–4 political union 23, 168, 214, 258, 261, 275–6 politicians 16, 20, 22, 79, 81, 154–8, 206, 209–10 politics 8, 10, 20–1, 23, 26, 242–3, 245, 263 popular outcomes 238–41 Portugal 27, 31–3, 57–9, 62–5, 71–3, 92–3, 96, 179–81 power(s) 4–6, 9–10, 12, 39–40, 158–9, 214–15, 249–50, 268 Commission 6–7, 268 decision-making 260, 262, 273 fiscal 24, 274 regulatory 4, 75, 207 pre-crisis period 88, 145, 153, 158, 164 price inflation 67, 81, 86 domestic 84, 86 relative GDP 91 price stability 5, 22, 167–8, 176, 190, 263 prices 24, 26, 32–3, 36, 66, 74, 264, 267 asset 33, 107–8, 132 domestic 33, 86, 204, 245 export 83–4 housing 2, 43 market 132, 239, 266 relative 33, 204 primary markets 115, 187 private banks 170–1, 175, 185 private capital 106, 110, 112 private sector involvement (PSI) 115, 180 productive workers 53–4 productivity 27, 30, 33, 37, 41, 53–4, 65–6, 151 growth 33, 62, 76, 83–4, 86–8, 91 total factor 54–5, 65, 87, 91 total factor 87, 92, 97 program countries 102, 124, 163 prosperity 201–2, 251 protectionism 201, 207–8 banking 203–7, 210 PSI (private sector involvement) 115, 180 public debt 24, 64, 84, 110, 113, 119–20, 133, 136 public ownership 131, 133 public sector 68, 79, 81–2, 131–3, 159, 224, 235 punishment mechanism 156–7 punitive interest rates 81, 113 purpose vehicles, special 101, 113–16 QMV (qualified majority voting) 113, 214, 216 qualified majority voting (QMV) 113, 214, 216 Raiffeisen 209–12 real convergence 48–9, 62, 64, 87 real effective exchange rates (REERs) 2, 33–4, 37, 43, 86, 88, 91–2, 96 real exchange rates 2, 27, 41, 82, 84, 91 real export growth 91–2, 97 real exports 87, 91–2 real growth rate 58–9 recapitalization banks 107, 110, 115–16, 129–30, 137–8, 140, 216, 218–20 direct 219 recession 2, 108, 125, 130, 134, 136, 140, 235–6 REERs, see real effective exchange rates referenda 244, 246–7, 249–50, 252, 273 refinancing operations 110, 170–3, 175, 180–1, 185 longer-term 68, 73, 171–3, 180 reforms 65–7, 98, 122–5, 127, 158–9, 164, 178–9, 250 constitutional 182, 246 fiscal 158, 182 to fiscal surveillance 123, 141 labor-market 2, 66 political 242, 246 structural 12, 49, 65–7, 129, 135, 182–3, 185 two-pack 40, 129, 146, 272 regulation 8, 42, 49–50, 128–9, 209, 213, 217, 221–2 regulators 48, 76, 138, 208, 211–12, 220, 224, 249–50 regulatory policies 43, 51–2, 74 regulatory state 43, 123 Rehn, Olli 123, 134–5, 138, 140 relative costs 37, 70, 80, 82, 85–6, 91–3, 96, 204 resources 8, 181, 186, 201, 207, 267, 275, 278 fiscal 8, 131, 169, 178 supranational 125, 138 responsibility 21, 75, 140, 171, 191, 235, 242 fiscal 138, 189 political 185, 188 restraint, fiscal 125, 127–8, 135 reunification of Germany 20–1, 262–3 reverse majority voting 127–8, 141 risks 43, 49–50, 68, 103–5, 114, 116–20, 184–6, 249 convertibility 64, 101, 103, 105–6, 114, 117–19 credit 72, 101, 103, 110, 117, 185 default 64, 102, 105 295 Subject Index risks (cont.) systemic 49, 102, 117, 172 Romania 151, 208 Rome Treaties 6, 16, 260, 264 Samaras, Antonis 187 sanctions 127–8, 145–6, 156, 277 financial 128 Sarkozy, N 179–80, 184, 206, 262 savings banks 217–18 Schäuble, W 173, 188, 217, 219, 221, 223 SEA (Single European Act) 6, 16, 19, 23 Seattle 43 secondary markets 126, 171, 176, 179, 182, 184, 218 secondary workers 53–4 securities market program, see SMP self-enforcement 141 SGP (Stability and Growth Pact) 2–3, 122, 124–5, 127–9, 131, 147–8, 259, 266–7 shareholders 220–1, 245, 248, 251 shocks 11, 24, 26, 68, 123, 147, 160, 164 asymmetric 22, 25, 50 economic 22, 200, 204, 234 external 107–8 idiosyncratic 130, 134 Single European Act, see SEA single market 19, 21, 23, 209–10, 221, 269, 276, 279 Single Resolution Board, see SRB Single Resolution Fund, see SRF Single Resolution Mechanism, see SRM single supervisor 188, 204, 213 Single Supervisory Mechanism, see SSM six-pack 37, 40, 127, 131, 135, 146, 185, 272 Slovenia 52, 111, 151, 208 small member states 145, 266 SMP (securities market program) 9, 119, 171, 178, 180–4, 186–7, 189 social security funds 131, 148 solidarity 9, 224, 268 solvency 68, 70, 175, 215, 223 southern Europe 2, 27–8, 51–2, 57, 76, 106, 110, 112 sovereign bonds 28–9, 62, 64, 110, 176, 178–80, 185–7, 249 sovereign debt 62, 159, 164, 172–3, 181, 188, 204, 271 crisis 3, 126, 129, 158, 168, 173 sovereigns 62, 64, 104–5, 108, 168–9, 175–6, 205, 224–5 sovereignty 21, 137, 202–3, 215, 218, 226, 250 fiscal 167 monetary 21, 100 national 10, 42, 214, 225, 258, 261–2, 264, 274 296 political 243–4 politics of pooling 214–23 Spain 27–34, 64–5, 70–3, 92–3, 96–7, 106–8, 181–2, 208–9 banks 137, 173, 209, 219 speculative attacks 107–8, 236 spillovers 18, 42–4, 125, 136, 215 SRB (Single Resolution Board) 51, 75, 222 SRF (Single Resolution Fund) 51, 75, 222–3, 259, 269–71, 273, 276 SRM (Single Resolution Mechanism) 38, 51, 75, 213, 220–3, 259, 271 SSM (Single Supervisory Mechanism) 38, 173–4, 201, 213–14, 216–18, 220–1, 224–5, 271 stability 2–3, 9, 145, 147–8, 178–9, 185–6, 200–2, 259 culture 134, 189 financial 36, 68, 102, 104, 106, 114, 169, 172 price 5, 22, 167–8, 176, 190, 263 programs 147, 150, 157 Stability and Growth Pact, see SGP Stability Treaty 186 stabilization 5, 8, 39, 41–3, 169, 185 financial 167–9 macroeconomic 38, 123–4, 130, 140 stabilizers, automatic 108–9, 134 Stage III of EMU 134, 148–9 statistical classifications 132–3 statistical governance 10, 128 statisticians 124, 131, 133 Steinbruck, Peer 33 strategic interactions 169, 171, 177–88, 190–2 strict conditionality 114, 187 structural adjustment 10, 101, 135 structural deficit 128, 136 structural imbalances 26, 42 structural reforms 12, 49, 65–7, 129, 135, 182–3, 185 sudden stops 79, 101, 110, 118 summits 177–9, 182, 184–5, 187, 191, 214, 216, 221 supervision 49–50, 200, 202, 217–19, 224 banking 10, 138, 193, 203, 210, 214–15, 218, 224 unified 187–8 centralized 200–1, 203–4, 207, 212, 216 common 50–1, 188 support, financial 113–14, 117, 132, 172–3, 177, 182 supranational institutions 5, 7–8, 10, 137, 139, 141, 202–3, 260–1 supranational resources 125, 138 supranationalism 222–4, 278 surplus countries 119, 152 Subject Index surpluses 91–2, 95–6, 148, 150, 152, 163 budget 3, 150, 158 current account 70, 84, 96, 106, 152 surveillance 2, 9–10, 42, 128–9, 135, 159, 266 fiscal, see fiscal surveillance macroeconomic 8, 37 sustainability, debt 67, 75, 123, 192 Sweden 65–6, 93, 113, 150, 153, 158, 208, 263–4 Switzerland 93, 264 systemic risks 49, 102, 117, 172 takeovers, foreign 202, 209 TARGET2 89–92, 95–7, 101, 103, 110, 112, 117 targets, multi-annual 156–8 tax wedge 56–7 Taylor rules 66–7 TEU (Treaty on European Union) 2, 20 TFEU (Treaty on the Functioning of the European Union) 171, 181, 221, 264, 270 Total Factor Productivity (TFP) 54–5, 65, 87, 91–2, 97 trade 1, 19, 24, 27, 35 balance of 34–6, 82 imbalances 34–6 transaction costs 24, 233 treaty change 217, 221 Treaty on European Union, see TEU Treaty on the Functioning of the European Union, see TFEU Trichet, J-C 33, 173, 178–80, 182, 190 triple crises 79, 105 triple-A-rated countries 187–8 troika 5, 39–40, 151, 154, 181, 187, 215, 249–51 Tsipras, Alexis 152 two-pack 40, 129, 146, 272 UK, see United Kingdom unanimity 18, 113, 168, 177, 181, 191, 273 unemployment 25, 53–4, 66–7, 97, 235, 238, 240, 252 insurance 43, 67, 182 rates 43, 53, 158, 238–40 UniCredit 209–12 unified banking supervision 187–8 unit labor costs 2, 34, 43, 64, 82–6, 91–2, 98 United Kingdom 150–1, 155–6, 180–1, 208–9, 259, 263–5, 269–72, 275–6 Bank of England 101, 118, 168, 172, 174, 176, 179, 191 United States 20, 22–5, 49–57, 68–70, 72–4, 168, 191–2, 208–10 banks 68–9, 72 Federal Reserve 139, 168–9, 172, 174, 175, 180, 191 Van Rompuy, Hermann 127, 164, 187 variables 4, 16, 18, 86, 156, 162–3 dependent 161–2, 203 economic 158, 161–2 Varoufakis, Yanis 277 voluntary coordination 38, 258, 267, 272–4, 278 voters 139, 242–3, 246, 251–2, 272–3 vulnerable countries 10, 12, 100, 103, 110, 119–20 wage bargaining 81–4, 182 wage costs 64–5 wage flexibility 23–4, 50 wage growth 65, 80, 83, 86 wage inflation 64, 82, 238 wages 2, 22–5, 32–3, 37, 41, 54, 66, 82–3 wealthy countries 93–4 Weidmann, Jens 172, 174, 189–90, 217 welfare-maximizers 122–4 “whatever it takes” comments 12, 103, 119, 173, 278 women 53–5, 60 workers 50, 54–5, 59, 86–7, 94, 240, 252 manufacturing 87, 92, 94 productive 53–4 secondary 53–4 world export market shares 93, 97 297 .. .The Political and Economic Dynamics of the Eurozone Crisis The Political and Economic Dynamics of the Eurozone Crisis Edited by James A Caporaso and Martin Rhodes Great Clarendon... Associate Professor of Political Economy, European Institute, London School of Economics and Political Science xvi Introduction The Political and Economic Dynamics of the Eurozone Crisis James A Caporaso. .. Introduction: The Political and Economic Dynamics of the Eurozone Crisis James A Caporaso and Martin Rhodes “States Choose but Not Under Circumstances of Their Own Making”: A New Interpretation of the