Political Tensions in the Eurozone Labour Market and Macroeconomic Imbalances in the Core and Periphery

The European sovereign debt crisis is leading to a transformation of both the democratic state and the political governance of the Eurozone. This dilemma has become particularly acute for countries in receipt of non-market financial funding in the European Economic and Monetary Union (EMU); a technocratic experiment in multilevel governance that is now in crisis. In the absence of currency devaluation and exchange rate adjustments, national governments have little option but to pursue an internal devaluation, putting increased pressure on wage, welfare and labour market institutions. This paper assesses these constraints by examining the politics of reform in the core (Germany) and peripheral (Spain and Ireland) regions of the Eurozone. National reforms in these regions, it is argued, are based on member-states defending their national models of capitalism but increasingly conditioned by the political and macroeconomic constraints of the EMU. The paper concludes that this horizontal and vertical tension facing national governments in a multi-level governance regime is leading to a democratic crisis of the state in debtor countries – and a direct consequence of EMU membership