Political tensions in Euro-varieties of capitalism : the crisis of the democratic state in Europe

Abstract

The European response to the financial cum sovereign debt crisis in the Eurozone is leading to a democratic crisis of the state. It has exposed a tension between the national and the supranational in a multi-level polity whilst opening up new political cleavages between the core and periphery of Europe. This dilemma has become particularly acute for programme countries that are either directly or indirectly in receipt of non-market financial funding from the troika?. In the absence of exchange rate adjustments, Ireland and southern European countries must pursue an internal devaluation that shifts the entire burden of adjustment on to fiscal and labour market policy. National governments, regardless of political partisanship, are required to comply with external EMU mandates and liberalise their welfare states, cut public spending and impose structural reforms in the labour market. The core argument of this paper is that imposing a one-size-fits-all adjustment to diverse economic problems across different varieties of capitalism is the real source of the Eurozone crisis. By using a crosscountry comparative analysis of Greece, Ireland, Italy, Portugal and Spain, I conclude that this is an outcome of inbuilt institutional and macroeconomic asymmetries in the EMU. But it is leading to unprecedented electoral volatility and a legitimation crisis of the democratic state in Europe.