The economic diplomacy of sovereign debt crises: Latin America and the euro-zone compared

This article compares today's euro-zone debt crisis, in terms of economic diplomacy, with the earlier crisis in Latin America. Four features served to reconcile the tensions and resolve the 1980s' crisis. A balance was preserved between debtor countries and creditor banks. Though initially contagious, the crisis was treated by a process of isolation. The IMF served as a neutral intermediary. Domestic pressures were defused, using 'two-level game' strategies. The same features reveal almost total failure to reconcile tensions in the euro-zone crisis. Growing imbalances between debtors and creditors led to serious loss of confidence. Early mistakes over Greece fed contagion throughout the euro-zone. No institution acted as neutral intermediary. Domestic pressures were not defused, putting the democratic process under strain. By late May 2012 the euro-zone's sovereign debt crisis had proliferated into a full-blown economic and banking crisis, with growing international consequences.