EMU after the Covid-induced economic crisis: is this time different?

This paper performs a critical evaluation of the main explicit or implicit assumptions underlying the current efforts to reform European political economies after crisis which are commonly based on a “comparative national models” approach. It does so by analyzing the structural reforms and the economic performance of Germany and Italy after the eurocrisis, taken as representative members of the northern core and the southern periphery respectively. (1) We first detail the common assumption that there are distinctive politico-economic models coexisting in Europe, with the ‘southern (Italian) model’ suffering from competitiveness problems and the ‘northern (German) model’ being ideally apt to the requirements of a globalized economy. Although the existence of a superior German model versus an uncompetitive Italian model has become firmly entrenched both in comparative political economy and in public opinion and among policy-makers, such classifications frequently suffer from the lack of sound empirical foundations. (2) We then challenge the conclusion, drawn from the assumption that structural rigidities are the primary cause of the economic woes of the European southern periphery, that countries belonging to it are plagued by a set political and institutional features obstructing needed structural. We rather argue that both Germany and Italy have undertaken remarkably similar reforms which, however, yield different results since the interdependency created by the Euro and the hyper-financialized markets inevitably rewards those countries which happen to have a low and penalizes those which happen to have a high sovereign debt. Redressing this situation in times of recession and in an overall deflated Euro-area is more akin to a Sisyphean fatigue than a recovery strategy. (3) Thirdly, we address the appropriateness of the EU’s current reform strategy. We do so on two levels: first, we question the common assumption that macroeconomic problems require microeconomic solutions (structural reforms); second, we address a core weakness of comparative political economy, namely its neglect of interdependence effects.