Centrifugal Forces in the Eurozone: Hegemonic Turmoil and the Rise of the “New Hanseatic League”

Hegemonic Stability Theory argues that the existence of a hegemonic power is a necessary condition for a stable international market economy. States are mostly treated as “black boxes” in this regard. Yet, what happens to the system if the stabilizing hegemon becomes unstable itself? In such phases, smaller states profiting from the existing system may fear that the hegemon is distracted from its international function of keeping the system stable. How do they react if they lose trust in the hegemon’s capability or will to maintain the status quo? The paper seeks to answer this question by focusing on the role of smaller “creditor states” in the eurozone grouping around a hegemonic Germany that since 2017 has been coping with domestic difficulties such as a shaky government coalition and a weakened Chancellor on her way out of politics. Since the outbreak of the eurozone crisis, these fiscally conservative countries have largely relied on Germany when it came to the governance and reform of the Economic and Monetary Union (EMU). Yet, in recent times Germany has been unsettled by domestic political changes and thus shifted its strategic preferences. At the same time, a more assertive France under President Macron has also demanded more concessions on risk-sharing in EMU. How have smaller creditor states reacted to this challenge? Drawing on Hegemonic Stability Theory, the paper argues that free-riding on Germany’s (quasi-)hegemony has become less rewarding for these states. Therefore, they build new coalitions to voice their preferences, such as the recently formed “New Hanseatic League”. Based on semi-structured interviews conducted with high-ranking officials in the member state capitals as well as EU institutions and Permanent Representations in Brussels, the paper thus interprets the emergence of the New Hanseatic League as a reaction to domestic politics in Germany and a resulting change in German preferences. In doing so, the paper develops a generalizable causal mechanism on how domestic turmoil in the hegemonic state may lead to the emergence of centrifugal tendencies. Empirically, the paper shows that the much-cited divide between “creditor states” and “debtor states” is no longer sufficient to describe the preference constellation in EMU. Instead, issue-specific subgroups emerge, putting forward diverging preferences against the background of differing national banking systems, Brexit and the retreat of the US as reliable partner for Europe.