In this masterful essay, Claus Offe diagnoses the multiple inherent contradictions of democratic capitalism in a Eurozone mired in a seemingly endemic crisis. In short incisive chapters, Offe surveys the built-in institutional design flaws and socioeconomic divergences in this probably irreversible but non-optimal currency area. And he dissects the problematic principal-agent relationships between myopic and still nationally oriented European voters and their various political (half-)agents; mainly their veto-yielding domestic leaders in the European Council and the non-elected Eurocrats in powerful EU institutions such as the European Central Bank, the European Court of Justice, and the European Commission. These multiple design flaws lead Offe to decry the sapping of democracy itself, and to fear for the very project of a unified Europe. Indeed, ‘it is the untamed and institutionally unembedded dynamics of the EMU and the Euro itself that threatens to disintegrate the European Union’ (p. 5).

Here, in a nutshell, is Europe's trap. After 2008, the big banks that had engaged in morally hazardous lending practices in already heavily debt-financed and ‘financialized’ (as opposed to ‘real’) economies needed to be rescued or assisted by many governments because these banks were too big to fail. These bailouts caused spiralling public debt-to-GDP ratios. Added to the prior loss of national-level monetary policy through the euro and of capital and corporate taxation tools through the eternal fear of capital flight, this debt spiral further reduced the policy capacity of domestic policymakers. And it forced governments, mainly on the Euro-periphery, into a misguided EU- or Troika-imposed fiscal retrenchment ‘reform’ drive that undercut the foundations of an economic upturn. The higher priority accorded to debt servicing in order to improve credit-worthiness in the eyes of the financial markets necessitated cutbacks elsewhere, in infrastructure and human capital investment and social policy spending. This dampened consumer demand and led to large-scale (youth) unemployment, thus further reducing GDP levels - faster still than debt levels.

As such, the tale is familiar from economic and journalistic accounts. But Offe adds a macro-institutional dimension and a political-sociological analysis of power and agency – and some left-progressive solutions. Banks were ‘the structural equivalent of hostage takers: if you want to save the life of the hostage, you had better do what banks request – a plain power relation’ (p. 17). In another manifestation of power, this prioritizing of debt servicing over social investment benefited the very banks that in many ways had caused the crisis. These banks enjoy ‘a somewhat miraculous second-strike capability: after having contracted heavy losses from reckless investments, they are not only being saved from economic death, they emerge stronger than before, because the credit they supply is now much more in demand’ (p. 37). A second set of winners from the crisis were a core set of fiscally sound and foreign-debt owning countries whose export surpluses were aided by a favourable single external exchange rate: Finland, the Netherlands, Austria, Luxembourg and, first and foremost, Germany.

Having noted the narrowing, or hollowing out, of the policy capacities of governments, Offe says rather less about the additional ‘real-economy’ reasons why some countries are ‘losers countries’ in the game of unit factor productivity, and others not. Clearly, there are additional, non-euro reasons why ‘core winners’ such as Germany and the Netherlands manage to maintain their export successes, and others not. Germany comes in for much criticism, much of it compelling, about the way in which it has stuck to its austerity guns and ‘debt-is-sin’ rhetoric while disproportionately benefiting from Eurozone stability and favourable exchange rates. But it is spared criticism for another significant way it is taking advantage of the crisis and perpetuating core-periphery divergences: the large-scale siphoning-off of the fruits of human capital investment by Europe's periphery through high-skilled (youth) immigration into its core. It would also have been useful to hear more extensively Offe's views on the virtues of the near-mythical German social capitalism model based on high-quality, high value-added machinery exports, as opposed to, say, the Southern (and partly Irish) model based on agriculture, seasonal tourism and/or tax competition and real estate bubbles.

The final chapters of the essay contain promising ideas sketching a set of solutions out of Europe's trap. The vicious cycle of ever-narrowing policy capacity, Offe argues, is ultimately a problem of deficient political agency. More daring leaders need to step in to reclaim the primacy of politics by shaping rather than following popular beliefs, re-forming electoral constituencies and providing visions of shared European identity and community. Offe suggests that the specific policy solutions adapted must ultimately be founded on notions of solidarity and social justice that are widely accepted by citizens and are formulated by proactive leaders. Social policy, domestically and EU-wide, plays a key role in this vision, for instance in the form of Youth Guarantees, tax harmonization, progressive taxation and even Europeanized unemployment insurance or Euro-dividends.

Social policy – improving social justice through social security and income redistribution across member states and social classes – is, for Offe, the most promising road forward. It is already part of adopted EU treaties, and can simultaneously mobilize Europeans by appealing to their fairness notions while tackling some of the social costs of the economic crisis. The essay's last sentence is a plea for a carefully designed set of EU-sponsored material entitlements destined not for banks and states but to suffering or at-risk Europeans. But wide beyond the social policy field, this insightful and highly readable synthesis can also be recommended to anyone worrying about the current plight of our continent and possible ways out of it.