Let me shift from causal identification to talk about something more popular. I have been following the Euro crisis since its beginning. I even have write some almost-serious stuff about it.
The topic is boring. It’s boring because it has two ingredients that make me fall asleep. Firstly, the details of any news update are just financial technicalities and a ton of policy jargon. There is little conceptual interest or anything challenging intellectually in looking at it once you understand the very basics of what a balance of payments crisis is and how it is peculiar inside a monetary union. I crossed that ceiling sometime like 5 years ago. Secondly, the problem is, at its heart, just a morality tale, a shock of narratives. Commentators taking sides just try to emphasize enough the effort of their side -poor greeks and bad troika; corrupt greek vs virtuous creditors.
The morality component of the story is important because the problem of adjustment has a large zero sum dimension, and sharing the burden requires some rule, typically some “fair” rule to that. That is precisely the role of morality tales. These narratives compete and structure the bargaining process. You cannot share the burden of adjustment and default without some idea of what is fair in mind. I’ve always felt those stories were highly disappointing. At the same time, I feel you can just not do without them when taking a side. You can not participate in the debate without getting dirty in the moralizing story.
It was reading this piece when I became aware of why I find this is so disappointing. It describes how the idiosyncrasy of the Greek political economy led them where they are. It pictures the country as one being institutionally weak and having all sorts of internal social problems. In one sense, it is inevitable to feel pity for greek people. Maybe corruption is widespread in the country and everyone participates in tax evasion; maybe people have voted many times for populist or demagogic politicians, but, can we really feel being born in a dysfunctional country is something a country should be collectively be blamed for? In a different sense, it is hard not to feel the greek, as a collectivity, meaning the Greek nation, have acted irresponsibly, electing and reelecting their politicians, while creditors have only acted irresponsibly trusting them.
Feeling the intellectual impasse to which this sort of reasoning lead, one can only feel to be dealing with the satanic enemy of social science. Yet, as I said above, there is no way out in the analysis: in a default, one must find a way of sharing the burden, and this implies making a (political) choice, that is, to make use of some normative standard.
In my view, a way out of the problem has to do with treating Greece, or the Greek people, as a single, responsible entity with duties and responsibilities. What the above mentioned piece shows is that, the behavior of the Greek state is not inter temporally consistent, it can’t be treated as an economic actor with a stable set of preferences and a reasonable commitment capacity because its institutions are not able to generate enough legitimacy so that the people feel collectively responsible for it.
I tend to think about the emergence of populist (anti-establishment) parties as quasi-revolutionary regime changes, that is, as legitimacy crisis where the winning coalition sustaining the regime experiment a reallignment. An old debate in international relations is whether the discipline should be state-centric. My view is that in this case one can learn a lot by taking into account the interaction of non-state actors.