External enablers of Eurozone austerity: exploring the link between the ease of suppressing domestic spending and trading partners’ demand

Pálma Polyák

New Political Economy, 2022, vol. 27, issue 5, 754-770

Abstract: In the onset and aftermath of the Eurozone crisis, why did the currency area stick to policies suppressing domestic spending and forcing up saving? And why could some countries uphold these policies easier than others? This paper explores how individual Eurozone members’ ease of suppressing spending was linked to the policy choices of their trading partners. It finds that beyond domestic ideological preferences, sectoral interests or distributive politics, Europe’s austerity bias was bolstered by a convenient external option: positive external demand shocks from China and the United States alleviated the employment costs of weakened home markets. The analysis of balance-of-payments and employment statistics is nested in a case comparison framework: it draws a parallel between Germany and Ireland and finds that, compared to their surplus and deficit country groups, these perceived ‘success cases’ of austerity were aided by their better position to benefit from foreign demand boosts through favourable export product mixes and established ties to faster-growing partners. Reliance on global demand, however, was only possible because of the regional nature of the shock; such boosts are absent in case of more widespread demand collapses like the Global Financial Crisis or the economic fallout in the wake of COVID-19.

Date: 2022
References: Add references at CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://hdl.handle.net/10.1080/13563467.2021.2013790 (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:taf:cnpexx:v:27:y:2022:i:5:p:754-770

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/cnpe20

DOI: 10.1080/13563467.2021.2013790

Access Statistics for this article

New Political Economy is currently edited by Professor Colin Hay

More articles in New Political Economy from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().