Capital moves more rapidly across national borders now than it has in at least fifty years and perhaps in history. This article examines the effects of capital mobility on different groups in national societies and on the politics of economic policymaking. It begins by emphasizing that while financial markets are highly integrated within the developed world, many investments are still quite specific with respect to firm, sector, or location. It then argues that contemporary levels of international capital mobility have a differential impact on socioeconomic groups. Over the long run, increased capital mobility tends to favor owners of capital over other groups. In the shorter run, owners and workers in specific sectors in capital-exporting countries bear much of the burden of adjusting to increased capital mobility. These patterns can be expected to lead to political divisions about whether or not to encourage or increase international capital market integration. The article then demonstrates that capital mobility also affects the politics of other economic policies. Most centrally, it shifts debate toward the exchange rate as an intermediate or ultimate policy instrument. In this context, it tends to pit groups that favor exchange rate stability against groups that are more concerned about national monetary policy autonomy and therefore less concerned about exchange rate stability. Similarly, it tends to drive a wedge between groups that favor an appreciated exchange rate and groups that favor a depreciated one. These divisions have important implications for such economic policies as European monetary and currency union, the dollar-yen exchange rate, and international macroeconomic policy coordination.
Europeans' confidence in political institutions has dropped precipitously since the onset of the Euro-crisis in 2009. The decline in trust in government varies across countries and occupational and educational groups. Economic factors explain much of the cross-national and over-time variation. The baseline level of trust is influenced by a person's position in the labor market: across European countries, citizens with more education and higher levels of skills trust government more than those educational and occupational groups that have benefited less from European integration. Residents of debtor countries with high unemployment rates are also much less likely to trust national government than those in creditor countries that have fared better during the economic crisis, while the unemployed have lost faith in government to a greater degree than other parts of the population. Cultural, ideational, and political factors remain important for baseline levels of trust, but cannot explain the acute, asymmetrical decline in citizen trust observed over the last decade.
The Eurozone crisis constitutes a grave challenge to European integration. This essay presents an overview of the causes of the crisis, and analyzes why has it been so difficult to resolve. It focuses on how responses to the crisis were shaped by distributive conflicts both among and within countries. On the international level, debtor and creditor countries have fought over the distribution of responsibility for the accumulated debt; countries with current account surpluses and deficits have fought over who should implement the policies necessary to reduce the current account imbalances. Within countries, interest groups have fought to shift the costs of crisis resolution away from themselves. The essay emphasizes that the Eurozone crisis shares many features of previous debt and balance-of-payments crises. However, the Eurozone's predicament is unique because it is set within a monetary union that strongly constrains the policy options available to policymakers, and vastly increases the interdependence of the euro crisis countries on each other. The outcome of the crisis has been highly unusual, because the costs of resolving the crisis have been borne almost exclusively by the debtor countries and taxpayers in the Eurozone.2
This article introduces the special issue on the political economy of the Euro crisis, which aims to improve our understanding of the causes, consequences, and implications of the highly unusual nature of this crisis: a financial crisis among developed countries within a supranational monetary union. The article provides a brief chronology of the crisis, discusses its underlying causes, and reviews the ways in which comparative and international political economy can help us understand the crisis. The article then discusses the individual and collective contributions of the articles in the special issue and discusses possible future research paths on the political economy of the Euro crisis. We conclude with a brief discussion of how a political economy perspective informs our understanding of the long-term prospects for the Eurozone and European integration.
For more than thirty years, until the completion of Economic and Monetary Union (EMU), the member states of the European Union (EU) attempted to x regional exchange rates. Naturally enough, most explanations of this process emphasize its monetary sources and effects. Some focus on how creating a multinational currency area might increase the ef cacy of monetary policy. Others stress how xing a national currency to a low-in ation monetary anchor, or adopting a single lowin ation currency, might enhance the anti-in ationary credibility of national monetary policies.1 In these views, European monetary integration was motivated by the belief that, by themselves, national monetary authorities would be unable or unwilling to pursue appropriate monetary policies.In this article, I focus, in contrast, on what might be called real as opposed to monetary sources and effects of European currency policies-that is, their expected impact on cross-border trade and investment. Exchange rates regulate the relationship between foreign and domestic prices, and thus the predictability and pro tability of cross-border trade and investment. Rather than restrict my analysis to monetary reasons for exchange rate policies, I suggest examining motivations that come from the country's trade, nancial, and investment ties. In this view, policymakers weighed the costs and bene ts of xed exchange rates with regard to their impact on national trade and investment. The principal bene t of xed rates and a single currency was to facilitate intra-European trade and investment; the principal The author acknowledge s the invaluable research assistance of Kathleen O'Neill and Mark Copelovitch. He also acknowledge s the comments and suggestions of
▪ Abstract The structure of international monetary relations has gained increasing prominence over the past two decades. Both national exchange rate policy and the character of the international monetary system require explanation. At the national level, the choice of exchange rate regime and the desired level of the exchange rate involve distributionally relevant tradeoffs. Interest group and partisan pressures, the structure of political institutions, and the electoral incentives of politicians therefore influence exchange rate regime and level decisions. At the international level, the character of the international monetary system depends on strategic interaction among governments, driven by their national concerns and constrained by the international environment. A global or regional fixed-rate currency regime, in particular, requires at least coordination and often explicit cooperation among national governments.
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