This class is an examination into the sovereign debt crisis afflicting Greece, Ireland, Portugal, Spain and Italy (the so-called GIPSI countries). In these countries the core assumptions of comparative political economy that domestic institutions and political choices lead to differing responses to crisis does not seem to hold. External constraints associated with membership of the EMU seem to be more important than domestic institutions and politics.
For Baccaro and Armingeon (2012) the sovereign debt crisis reveals two things: a dramatic shrinking of the policy space for peripheral countries as a result of monetary unification, and an in-built neoliberal bias of the Euro project. The common GIPSI response is to engineer an internal devaluation vis-á-vis Germany and other trading partners. This has been forced on to countries either directly as part of EU-ECB-IMF (troika) bailout packages or indirectly by interest rates in the sovereign bond markets.
EMU countries are being forced into a procyclical fiscal policy (austerity in a time of contracting growth) which, according to the IMF, is proving to be self-defeating. They are imitating an internal devaluation – focused on cuts in public sector pay, numbers and services. For Baccaro and Armingeon (2012) the only choice left for governments is the process through which they legitimate policy decisions: technocratic governments, grand parliamentary coalitions, concessionary social pacts.