Small States, Nationalism and Institutional Capacities: An Explanation of the Difference in Response of Ireland and Denmark to the Financial Crisis

Abstract

AbstractThis paper uses theories of small states (e.g. Katzenstein) and nationalism (e.g. Gellner) to explain why Denmark and Ireland responded to the 2008 financial crisis in different ways. In Denmark, a coordinated market economy with considerable corporatism and state intervention, the private sector shouldered much of the financial burden for rescuing the banking sector. In Ireland, a liberal market economy without much corporatism or state intervention, the state shouldered the burden. The difference stems in large part from the fact that Denmark had comparatively thick institutions and a strong sense of nationalism whereas Ireland did not. Lessons for the theories of small states and nationalism are explored.