All a matter of perception? How elite crisis perception shaped the evolution of differentiated integration in EMU during the sovereign debt and the Covid-19 crisis

Common wisdom suggests that euro area member states (EAMS) and non-EAMS embarked on diverging paths of integration. The widening institutional gap between these two groups during the sovereign debt crisis added further to the conclusion that differentiated integration (DI) in Economic and Monetary Union (EMU) is durable and self-reinforcing. However, the developments during the Covid-19 crisis constitute a puzzle to the path-dependency argument. In countering the pandemic's economic consequences, EAMS and non-EAMS cooperated and introduced EU-wide instruments of fiscal solidarity. Explaining these different outcomes of economic crises on DI in EMU, this paper considers the factor of elite crisis perception. The theoretical argument suggests that crises will only lead to more divergence if their perception among elites is shaped by DI as a cognitive framework. Policymakers need to refer to the distinction between insiders and outsiders when interpreting threats and spillovers. The empirical analysis combines 39 semi-structured elite interviews with a discourse analysis. Findings confirm the relevance of elite crisis perceptions in explaining the different outcomes. Policymakers perceived the sovereign debt crisis as a euro area crisis. Existential threats and conclusions on necessary reforms were mainly interpreted as applying to EAMS only. This elite perception facilitated the adoption of differentiated frameworks and policies. In contrast, during the Covid-19 crisis, multiple factors reduced the importance of DI in shaping elite crisis perception. The distinction between EAMS and non-EAMS was less present when interpreting threats and spillovers, making EU-wide reforms feasible. These findings challenge the deterministic perspective on the stability and the self-reinforcing nature of DI in EMU.