So with the collapse of the Greek party system attention is turning to the politics of the crisis. About time. There's an interesting paper by Mian, Sufi and Trebbi about crisis provoking inequality and then political polarization, which in turn blocks reforms and makes exiting from crisis more difficult (Political constraints in the aftermath of financial crises | vox). A couple of thoughts.
First, I'm not sure inequality provokes political polarization, at least at the level of the party system. The US, everyone's favourite case, seems to back this theory, until you consider that the Democrats have actually been moving rightwards over the past quarter-century - they just haven't been moving quick enough to keep up with the Republicans, who are dropping off the edge of the democratic spectrum. Sure, there is a lot of potential for inequality to result in polarization, but when an institutionalized party system fails to pick up on this potential, it won't emerge.
Second, although there is plenty of evidence of political parties actually forming a pro-liberalization cartel, rather than polarizing, whilst inequality rises, this can't necessarily hold forever. In Greece, we have seen what happens when the crisis hits extreme levels - people reject existing parties and vote for minor, usually more radical, political forces. So the effects of crisis could well produce polarization, but first the existing party system - which have so far tended to cartelize around austerity and further liberalization - has to collapse. I don't think Greece will be the only case, but so far the cartel is holding in Spain, Italy and Portugal (and in Ireland to a lesser degree). So far elections in western countries have almost always overthrown the incumbent, but have also almost always returned the established opposition. In Greece, it took a third post-crisis election to usher in the crazies. We'll see if that happens elsewhere - Italy 2013 is a good candidate.
Finally, it's not surprising that political parties are struggling to impose 'reforms'. First, these reforms won't necessarily produce much growth - their impact is likely to be marginal in the short run. The fact that liberalization measures are associated with the ideas and institutions that brought us casino capitalism and unsustainable housing bubbles doesn't help. But the second point is that even if the reforms were a good idea, political parties in western democracies no longer have the legitimacy and authority to impose them against the predictable opposition of affected groups. The last 30 years in the west have seen not only liberalization, but also party decline, with party membership, voter partisan identification and voter participation all falling across western countries. Parties are not what they once were, as Philippe Schmitter put it a few years back. We are facing a situation of unprecedented economic stress with not only indebted governments, but tired and fragile political institutions. Not good.