Interdisciplinary Analysis of Luhmann’s Sociological Theory on the Euro-Crisis

Abstract

ABSTRACT. This paper establishes a unique linkage between economic and sociological theories. I study the root causes of the euro crisis from both perspectives. I find that resolving the euro crisis requires economic and sociological insights, particularly in respect to the design of European institutions, rules, and regulations. I develop a new paradigm in attempt to tackle the euro crisis. This paper demonstrates the importance of an interdisciplinary dialogue and how this may safeguard the future of the Economic and Monetary Union.Keywords: Euro-Crisis, Luhmann's Social Systems Theory, Economics.JEL Classification : G12; E65; C58IntroductionThe ongoing 'euro crisis' is often seen as an economic issue and referred to as the European sovereign debt crisis. Admittedly, a comprehensive economic analysis demonstrates that the euro crisis has several origins and is not just a simple debt crisis (Lane, 2012). There are multiple root causes and vulnerabilities, particularly the flawed European economic and fiscal governance (Herzog, 2013). However, as I establish in this paper, the euro crisis has a firm sociological underpinning at the same time. According to Luhmann's 'Social Systems Theory', there is a fundamental problem in functional systems, such as in the Economic and Monetary Union (EMU). In other words, Europe is facing a social-systems problem rather than just an economic crisis. This insight is intuitive under the recognition that the euro crisis is not merely a macroeconomic and monetary issue, and thus, as I will show, relates also to flawed functional systems as studied in sociology.The fundamental dynamics of states, institutions, and humans is predisposed to both group interactions and incentives. Sociological theory studies those group patterns and behaviours and thus do have an impact to resolve the euro crisis in the real world. Economic theory on the other hand lacks a rigorous discussion of group interactions because this is too sophisticated to be subsumed under the assumption of the methodological individualism a la Max Weber (1929).I find that Luhmann's approach precisely reveals this insight, especially in respect to the systemic effects of the macro-economy. The constructivist idea demonstrates - the repeatedly unconnected - linkages between the institutional (legal), economic, and political system. Thus, this interdisciplinary study of the economic and sociological origins of the European sovereign debt crisis appears promising. Indeed any policy recommendation, which tackles the existing flaws in fiscal and economic governance in Europe, requires a thorough understanding of both spheres.Section 2 starts with the economic analysis of the root causes and implications. In section 3, I utilize Luhmann's social systems theory to obtain a new perspective on the euro crisis. Finally, I compare insights and implications of both scientific perspectives, and summarize the policy recommendations in section 4. Section 5 concludes the paper.1. Economic PerspectiveTo make this paper comprehensible to an interdisciplinary community, I shall briefly explain the necessary economic theory and mainstream arguments about the root causes of the euro crisis in this section. There are already excellent overview articles on the economic root causes by Lane (2012), Arghyrou and Kontonikas (2012), Sachverstandigenrat (2012), De Grauwe and Ji (2013) and Geithner (2014).There is no doubt that the Economic and Monetary Union (EMU) has been in an economic and political crisis since 2010. The first fundamental problem is the current account imbalance across the macro-economy of the euro area member states (Herzog, 2012).Secondly the European institutional structure is unsuitable to tackle this issue. There is a consensus that fiscal and economic governance is a prerequisite for a successful and effective monetary union (Escolano et al., 2012) and this has been identified in economic literature long ago (Beetsma and Bovernberg, 1999; Beetsma and Uhlig, 1999). …