Events & News


Trapped by Success: The Political Economy of the European Sovereign Debt Crisis

Professor Hubert Zimmerman, Visiting Fellow, EU Centre in Singapore, Professor for International Relations, Philipp University of Marburg, Germany

09 Feb 2012

LT 601, NTU@one-north campus, Executive Centre 11 Slim Barracks Rise (off North Buona Vista Road) Singapore 138664

3.30 – 5 pm



To better understand the situation the euro zone finds itself in today, Prof Zimmermann spoke about the reasons behind the creation of the euro—a first conception of monetary union in today’s sense, made 1969 – and the problems it was supposed to solve. Monetary union has been pursued for several abiding reasons, among which are reducing transaction costs, achieving monetary independence, stabilising European cooperation and lessening German hegemony.

Today the euro is arguably the world’s second global currency after the US Dollar. This success hides the fact that it has in fact exacerbated inequalities and imbalances between the economies in the single currency area. While there has been increased market integration and added growth, the problem of the unequal distribution of the benefits of growth has lingered on. Lower borrowing costs also gave rise to cheap money, which was heavily consumed by some member states currently embroiled in sovereign debt crises. While membership of the euro zone created pressures towards convergence, its member countries remained economically diverse. Furthermore, the convergence criteria were also not enforced, and in Prof Zimmermann’s opinion, superficial.

The single currency area has reached a critical juncture which he described as a ‘trilemma of international cooperation’. He explains this situation as the result of a combination of factors. Firstly, while the euro exerts pressures towards economic convergence, the euro zone has far too many partners for this to be realistic. Secondly, cooperation is very deep and the euro zone has an expansionary logic, making any moves to withdraw and weaken cooperation almost unthinkable. Lastly, a ‘legitimacy trap’ has been created, as any solution will require political compromises such as more far-reaching surrender of sovereignty through more qualified majority voting. The resulting form will only strengthen the EU’s supranational nature, posing a threat to national parliaments. He argued that the current crisis is a result of the tensions between these dimensions, and that only two at most out of these three can be achieved at the same time.

He commented that at this point, there are no more easy solutions, only painful ones. He did add though, that he thinks the single currency will survive the crisis, albeit in a different form, and that the world can still learn much from the EU and the sovereign debt crisis. Specifically, International cooperation comes with inescapable trade-offs that have to be weighed against efficiency gains. Furthermore, as cooperation becomes more far-reaching, the trilemma between mutual divergence, forced convergence and legitimate outcomes becomes inevitable.