The “responsible”, the “irresponsible” and the Political Economy of the Sovereign Debt Crisis

The "irresponsible" and the "responsible"
The “irresponsible” and the “responsible”

There are “irresponsible” countries (Greece, Ireland, Italy, Portugal and Spain) which caused the current crisis; and there are “responsible” governments (Germany), which for some reason are asked to repay others’ debts and have the right to refuse to bail “irresponsibles” out and to insist the “irresponsibles” mend their ways.
Well, this a still prevailing narrative of what is going on in Europe. But let’s look at the altenative elaborated by  Klaus Armingeon and Lucio Baccaro in “Political Economy of the Sovereign Debt Crisis: The Limits of Internal Devaluation” (open access).
In this stimulating and interesting article  Armingeon and Baccaro argue that the common account is only partially true anf they amend it by proposing three interrelated arguments.
First, the sovereign debt crisis is more complex than a simple story about fiscally irresponsible governments which now are being forced by international financial markets to tighten their belts. Ultimately, it is the result of a political decision to create a currency union among economically non-homogenous countries without making any provision for the use of democratically legitimated fiscal transfers to correct asymmetric shocks.
Second, the internal devaluation policy which is being imposed on Greece, Ireland, Italy, Portugal and Spain is ineffective and counterproductive. Internal devaluation depresses growth, and the absence of growth requires further austerity for government to regain their fiscal credibility, thus generating a vicious cycle.
Third, the current policy response has brought the time-old problem of the democratic deficit of European institutions to new and previously unattained heights. While national governments continue to be held electorally accountable by citizens, they have lost any meaningful ability to choose among alternative policy options and, as a result, implement everywhere pretty much the same, deeply unpopular austerity package. This has created a situation in which domestic politics matters much less than the views of international financiers and technocrats and has contributed to delegitimizing both domestic and European institutions
Plainly illustrating and explaining their arguments,  Armingeon and Baccaro alarm that the current state of affairs threatens not just the future viability of the Euro but of the European project as a whole.

Armingeon, Klaus 
and Lucio Baccaro. 2012. “Political Economy of the Sovereign Debt Crisis: The Limits of Internal Devaluation.” Industrial Law Journal 41 (3): 254-275.



  1. If I well understand it’s a collective responsability. Moreover, the internal devaluation in “weak” countries (Greece and so on) is what we have to wait in a optmal currency area (yes, I know that the eurozone isn’t but read the continuation). From this point of view, the second argument would have to add that wages don’t increase sufficently and in accordance with the theory in “strng” conutries (Germany in particular). It’s an important thing to set responsabilities.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s