This paper offers a critical assessment of the assumptions underlying the current efforts to reform EMU. Distinctive politico-economic models coexist in Europe, with the ‘southern model’ presented as suffering from competitiveness problems and the ‘northern model’ as ideally adapted to the requirements of a globalized economy. Though such views have become commonplace in the literature (Hall and Soskice 2001) as well as in public opinion and among policy makers, they sometimes lack sound empirical foundations. In part, this results from a tendency towards backward deduction: in order to derive a manageable set of politico-economic models, comparative political economy often generalises from a limited number of cases without detailed inquiry. This is especially clear for the Italian case: if there is such a thing as a ‘southern model’, Italy does not share its fundamental logic. The distinction between a German export-led model versus an Italian demand-led model (Hall 2012: 510; Streeck 2015: 14) is questionable in theoretical terms and lacks empirical support. Something similar holds for the pervasive structural rigidities that allegedly characterise the Italian labour market. Moreover, in terms of financial stability we find that Italy possesses more of ‘patient capital’ while the German financial system displays vulnerabilities that lack a counterpart in Italy. Starting from a detailed analysis of the German and Italian political economies we question the current approach to European economic integration which is premised on the need of all EMU members to converge towards the northern model. Our comparison of the reforms implemented in Germany and Italy allows us to address the appropriateness of the EU’s current reform strategy. First, we question the common assumption that macroeconomic problems require microeconomic solutions (structural reforms). Secondly, we address a core weakness of comparative political economy, namely its neglect of interdependence effects.
