Putting the Eurozone Crisis Experience in Perspective

Abstract

Abstract Much research has treated the Eurozone crisis as a sui generis event. Yet we can only examine exactly how the Eurozone crisis is distinct from other crises if we compare it to other, similar crises. This chapter therefore develops a comparative framework that allows for us to study the distributional trade-offs inherent in crisis management of a large set of crises, including the Eurozone crisis. It argues the relative costs of external vs. internal adjustment will shape crisis politics, including the willingness of these countries to accept harsh conditionality in return for external financial support. The chapter develops measures to compare national vulnerabilities to internal and external adjustment and analyzes the crisis responses for a sample of 142 crisis episodes that occurred in a sample of 122 countries between 1990 and 2014. Our analysis shows that the vulnerability profile is a useful tool for analyzing crisis responses across a wide variety of balance-of-payments (BOP) crises. It also demonstrates that the Eurozone crisis is unusual because all crisis countries were located in the “misery corner”: Deficit country vulnerabilities to both internal and external adjustments were exceptionally high, and vulnerabilities frequently increased over the course of the crisis. In such a setting, quick and decisive crisis solutions are hard to find.