Political Economy of Eurozone Debt Crisis in The Context of Varieties of Capitalism Debate

Abstract

After the collapse of the Soviet Union, capitalism became the dominant economic system that attracted academia to the subject. While most of the studies on capitalism put “state” at the center of their analysis/theories, the varieties of capitalism (VoC) theory put the firm at the center of its analysis, which made it popular in the last two decades. VoC classifies the economy according to firms’ strategy to overcome five spheres where potential problems arise: industrial relations; vocational training and education; corporate governance; inter-firm relations; and employees. VoC also makes a classification of national economies: liberal market, coordinated market, and mixed market economies. This study analyzes the Eurozone debt crisis within the framework of VoC theory and takes the German economy as the case study to link the debt crisis with the national economies and the existing economic and monetary policies of the Eurozone (Economic and Monetary Union, EMU). Germany is examined in terms of its economic characteristics; her role in the establishment of EMU policies; and her response during the Eurozone debt crisis. The scope of analysis is limited to the time period between the establishment of EMU and Eurozone debt crisis, and to the geography of the Eurozone continent (Northern and Southern economies). The methodology of the research is a desk-based analysis of macroeconomic statistical data. The basic argument of this study is that the existing EMU policies are designed to contribute to national economies of the northern countries (coordinated market economies) denoted by the basic macroeconomic indicators and the conclusion of this study concludes that Eurozone debt crisis was a consequence of common policies of Eurozone that neglected the unique peculiarities of member states’ economies. The findings of this study suggest that instead of uniformity of economic and monetary policies, unity in diversity would be a better solution to the problems of EU in times of crisis.