This chapter introduces the empirical puzzle that started this book's research. During the 1960s and 1970s, Belgium and the Netherlands experienced two parallel shocks: one was the breakdown of their consociational democracies; the other was a rapid increase in unemployment and current account and fiscal deficits. Nevertheless, both countries managed to make effective macroeconomic adjustments by the early 1980s. The challenge is to understand both what they did to respond and how they managed to do it. This challenge means that the basic model for Small States in World Markets as elaborated by Peter Katzenstein should be considered.
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