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 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, all 27 member states introduced EU-wide instruments of fiscal solidarity. This paper considers the factor of elite crisis perception to explain these different outcomes of economic crises on DI in EMU. The theoretical argument suggests that crises will only lead to more divergence if elite crisis perception 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 currency area crisis with threats and spillovers mainly applying to EAMS. This differentiated elite crisis perception facilitated differentiated reform outcomes. In contrast, policymakers perceived the Covid-19 crisis as a health emergency applying equally to all EU member states. The distinction between EAMS and non-EAMS was less present when interpreting threats and spillovers, making EU-wide reforms feasible even if economic and fiscal circumstances were differentiated among these two groups. The paper’s findings challenge the deterministic perspective on the self-reinforcing nature of DI in EMU.