The latest ideational battleground of the ongoing financial crisis has been the institutional structure of the Economic and Monetary Union (EMU) of the European Union. Formerly sacred rules and practices have been swept away by the tide of events or are in the process of undergoing fundamental changes, and the distributional consequences of seemingly technical arrangements and policies have been brought to the fore. This paper adopts the theoretical framework developed in Blyth (2002) to analyse the role of ideas in the construction of identities and interests during times of economic crisis. Focusing on the two central areas of macroeconomic policy coordination, monetary and fiscal policy, the paper shows that the ideational foundation that supported the institutional separation of the two has been shaken by recent events, which leaves various actors in doubt as to what should be there interests in a fast-changing environment. The first part provides a review of the ideational challenges to the existing institutional arrangements: The critique of the asymmetric adjustment process implied by the fiscal rules of the Stability and Growth Pact, as well as the calls for the ECB to step in and monetise national debts in the short term, and to expand its monetary policy goals towards targeting asset prices in the long run. The second part of the paper then maps the social, national and organizational interests associated with these new ideas about fiscal and monetary policy. The upshot is that new ideas are re-shaping identities and may forge new cross-border alliances – a process whose consequences may change Europe far beyond the technicalities of macroeconomic governance.
