Crises and policy responses within the political trilemma: Europe, 1929–36 and 2008–11

Abstract

The recent debate on the Eurozone failed to appreciate a particular characteristic of European crisis experiences, namely their fundamentally political character. To make my argument, I borrow from Dani Rodrik (2000) the framework of a "political trilemma" between cross-border economic integration, national institutions and democracy (in the sense of mass politics) and discuss its relation to the more commonly known "macroeconomic trilemma" as well as some limitations of the framework. The recent experience of a European debt crisis and the experience of Europe's Great Depression can be interpreted as a "political trilemma": both reflect the problem of designing effective policy responses to major economic shocks within the environment of deep economic integration across political boundaries and the regime choices that this involves. Within this framework I highlight some aspects of the 1930s that are informative to the policy choices in Europe today. Once we accept that some policy choices should be avoided, attention should be shifted to the remaining options and the obstacles that prevent their implementation, notably the challenge to transform democracy beyond national borders.Europe will be forged in crises, and will be the sum of the solutions adopted for those crises.-Jean Monnet

Long-Term Growth in Europe: What Difference does the Crisis Make?

“…The alternative, ‘United States of Europe’, solution would require major institutional reform within the EU and would entail banking union, fiscal union, and a constitution that ended Europe's ‘democratic deficit’. Wolf (2012) spells out what this might enable. He notes that it would allow more effective European fiscal and monetary policy at the ZLB, and political legitimisation of a much higher level of transfer payments from an expanded European budget while also finding a way to share burdens of adjustment between surplus and deficit countries.…”

“…The decision to leave the Gold Standard was analysed by Wolf (2008) who used an econometric model to examine the odds of remaining in this fixed exchange rate system. The model accurately predicts departures and shows that a country was more likely to exit from the Gold Standard if its main trading partner had done so, if it had returned to gold at a high parity, if it was a democracy, or if the central bank was independent.…”

Default, rescheduling and inflation: public debt crises in Spain during the 19th and 20th centuries

“…Without economic growth and an improvement in the competitiveness of the Spanish economy, the level of public debt would rise and eventually the country would need a bailout by the European Commission, the European Central Bank and the International Monetary Fund, as had been the case of other Eurozone peripheral countries. Only a shift in the European Commission and European Central Bank's fiscal and monetary policies could save the Spanish State from falling into another deep public debt crisis (Krugman 2012;Roubini and Greene 2012;Wolf 2012).…”

Responsible Government and Capitalism’s Cycles

“…While the trilemma of the world economy helps us to think about the 292 D. Bohle general tensions that exist between globalising capitalism and democracy, it is much less clear how these tensions play out in the short term, and it is here that Mair's focus on dilemmas of government is very important. As Wolf (2012: 3) argues, 'Rodrik thinks about constraints in the long-run. In the shortto medium run … policy makers might go a long way with solutions inbetween before they will have to face some tough choices'.…”

“…2. For recent accounts of European integration through the lens of the globalisation trilemma, see Wolf (2012) and O'Rourke (2011). 3.…”