Economic Crisis and Austerity in Southern Europe

Threat or Opportunity for a Sustainable Welfare State

Maria Petmesidou, Ana Marta Guillén

• Publisher: Routledge
• Year: 2017
• Print ISBN:
  9781138853553
• eBook ISBN:
  9781317525813
• Topic: Politics & International Relations
• Subtopic: Politics
• Index: Politics & International Relations

Southern Europe has been hit hard by the global economic crisis and, as such, their welfare states have come under acute strain. Unmet need has sharply increased while significant welfare reforms and deep social spending cuts have been prominent in the crisis management solutions implemented by governments, labouring under EU constraints and the strict rescue-deal requirements for Greece and Portugal.

This volume provides a systematic comparative appraisal of welfare-state reform trajectories across Southern Europe prior to and during the crisis, and traces the impact of austerity policies and wider recession upon income inequality and poverty. It brings together a number of cross-country studies on major social policy areas, raising crucial questions. What policy choices are driving reforms as Southern European economies work their way out of fiscal difficulty? Can the crisis provoke the improvement of institutional capabilities and recalibration of social? Or, instead, does structural adjustment indicate a significant policy turn towards the erosion of social rights? The contributions critically approach these issues and bring evidence to bear upon whether Southern European welfare capitalisms are becoming more dissimilar.

This book was originally published as a special issue of South European Society & Politics.

Can the Welfare State as We Know It Survive? A View from the Crisis-Ridden South European Periphery

Maria Petmesidou and Ana M. Guillén

South European countries have been hit hardest and longest by the post-2008 economic crisis. This has brought their welfare states under acute strain. Unmet need has sharply increased while significant welfare reforms and (more or less) deep cuts and changes in social spending have been prominent in the repertoire of the crisis management solutions implemented by the governments (under European Union constraints and the strict rescue-deal requirements for Greece and Portugal). This introduction briefly reviews reform trends prior to and during the crisis in order to highlight convergent and divergent paths among the four countries and outline the major questions addressed by the contributions to this volume.

In the aftermath of the credit crunch, in a lecture Paul Pierson gave at the London School of Economics (LSE) (November 2010), he aptly raised the question of whether, after four decades of shifts and turns in social provision in the western world, the era of retrenchment finally begins now (see also Pierson 2011). This is mostly true for the South European (SE) welfare states that, contrary to the trajectory of northwest European welfare regimes, started expanding from the 1980s onwards, at a time of mounting pressure for retrenchment and restructuring in western countries, ushering in (particularly in the Anglo-Saxon world) a progressive politico-ideological weakening of welfare state legitimacy. During their ‘lagged’ path of welfare-state expansion, SE countries faced serious challenges from an array of internal and external pressures. Globalisation and, most importantly, mounting fiscal constraints in the run-up to the introduction of the Euro severely strained social budgets, even though unmet need and inequalities and imbalances in social protection persisted (though to a different extent among the four countries). Yet, more than ever before, the current financial and economic crisis has brought SE social protection systems to a critical juncture.

Since the early 1980s, institutional and policy change in European welfare states has been a central research theme. The accumulated literature throws light on the variety of reform strategies over the last four decades, in a macro-economic environment where Keynesian demand-side priorities gave way to stricter fiscal and monetary policy measures (culminating in the fiscal rules of the Economic and Monetary Union). In short, reform options embraced (a) cost-containment/retrenchment as a response to budgetary pressures, (b) employment-friendly measures in the field of tax/benefit systems so as to facilitate market participation; and (c) recalibration (‘amending’/‘modernising’) of existing policy instruments in the face of new social risks of post-industrial societies (that is, changes in gender roles and family patterns, increasing female labour-force participation in the service economy, demographic ageing and rapid decline of lifetime jobs).

The latest crisis broke out in 2008 in SE and lasts to date. The credit crunch, turned into a sovereign debt crisis in SE, has intensified the challenges and tensions faced by the SE welfare states and brought to the fore questions such as: Has the crisis ushered in a period of draconian social retrenchment? Does this indicate a significant erosion of social and labour rights, as social policies in the broad sense have become the main variables of adjustment – through internal devaluation – in the European Union (EU) (Degryse, Jepsen & Pochet 2013)? Or is there, instead, a window of opportunity for recasting social policy along the lines of a ‘social investment’ welfare state (Hemerijck 2012)?

Equally relevant is Pierson’s argument about tactics of policy ‘drift’ (e.g. continuous provision exhaustion) that may eventually outflank the welfare state, just as the ‘Maginot Line’, built on the eastern frontier of France to prevent Nazi invasion, failed to do so, as Pierson (2011, p. 22) aptly put it.¹ Surely, drastic budget austerity and an erosion of labour rights, all the more prevalent in Europe amidst the protracted aftershocks of the financial crisis, threaten to tip the balance away from social Europe. Crisis management measures (the ‘Six Pack’ of macroeconomic policies, the ‘Euro Plus Pact’, the ‘European Semester’ and the ‘rescue deals’ for the ailing countries) more or less embrace a single objective, namely structural adjustment through wage squeezes, weakening public services and social protection. This reflects the dominance of the market-driven convergence approach (via deregulation and market adjustments), given the fact that any plan for socio-political integration has persistently been undermined in the EU so far (Degryse, Jepsen & Pochet 2013). Advocacy in favour of an emerging ‘social investment’ paradigm does entail innovative potential to counteract the austerity orthodoxy. This is premised upon the development of preventive ‘social investment’ policies and the balancing of flexibility and security. Nonetheless, the influence of such a perspective has remained at an ideational level so far.

Against a backdrop of significant and rapid policy moves in Europe, the contributions to this volume aim to shed light on reform trends in major social policy fields in SE countries. The emphasis is on the policy options, the orientation and nature of reforms, the specific policy outputs and the ensuing parametric/paradigmatic change, as well as the current (and potential) outcomes.

Reform Paths Prior to the Crisis

Closely linked to the above considerations is the question of any structural changes in the recent past that may have significantly altered the hybrid form of welfare arrangements in SE countries, which has been a prevalent trait for a considerable time (Guillén & León 2011, pp. 1–16; Petmesidou 2013). These embrace elements from all three ‘welfare regimes’ distinguished by the well-known typology documented in the work of Esping-Andersen (1990). Pensions developed on an occupational basis according to the Bismarckian model. Traditionally, these were highly fragmented, but over the last two decades they have undergone significant changes in the direction of levelling out coverage and provision and introducing stronger actuarial components and private insurance (though varyingly among the four countries). In the late 1970s to the early 1980s, a social-democratic element was introduced in healthcare with the establishment of national healthcare systems. This is a significant path shift that, however, met with a different degree of success in each country. On the other hand, statutory coverage of care and social assistance needs has been limited and family arrangements have predominated. Non-governmental organisations (NGOs) (including religious organisations) contribute to welfare provision. A dense network has been prominent in the Latin Rim countries with the Catholic Church and the Red Cross playing a crucial role. This is not the case in the Balkan area where the values of Eastern Orthodoxy and its historical limitations of social activism did not provide fertile ground for institutionalised voluntary action (Petmesidou & Polyzoidis 2013).²

Under the influence of internal and external pressures (i.e. demographic trends, new social risks, changing gender roles, budgetary strains and the fiscal requirements for joining the European Monetary Union [EMU]) all four countries faced the need to contain costs and rationalise/modernise social programmes. From the mid-1990s, to one extent or another, EU influence introduced a novel discourse in SE countries on ‘recalibrating’ welfare programmes towards more active and service-oriented provision. The extent to which this has triggered reform that has altered the traditional configuration of social provision varies among the four countries. In the run-up to the adoption of the euro, reform gathered momentum in Italy and Portugal, but has waned since the early 2000s. Seemingly, in Spain, a piecemeal but steady process of negotiated reform has been a key characteristic of high-level policy-shaping decisions until recently (Guillén & Léon 2011). Compared with the other three countries, Greece ostensibly failed to deal with major dysfunctions and imbalances in social protection in the previous decades. The debilitating crisis made an overhaul imminent but at the same time it put the reform process in dire straits.

In Italy, it is largely the intense political crisis in the early 1990s (which swept away the existing party structure), as well as the challenges of joining the EMU, that gave an impetus to social reform and provided propitious conditions for social pacts around wide-ranging changes in social protection, industrial relations and labour market policies (Ferrera & Gualmini 2004). Public deficits and indebtedness soared dramatically during the 1980s in Italy (a characteristic also shared by Greece), partly because of a significant expansion of earnings-related schemes (proliferation of new funds, early retirement, disability pensions) under the strong grip of clientelistic–particularistic exchanges. Thus retrenchment and rationalisation in traditional policy fields (such as pensions) became a key priority in the 1990s, and were accompanied by significant steps forward in social assistance and social services, at least at the level of legislation and experimentation (e.g. legislation for the introduction of an anti-poverty scheme, piloted in selected municipalities between 1998 and 2002, and legal provisions for reducing regional inequalities and guaranteeing ‘an essential level of service’ throughout the country on the basis of universal though selective criteria; see Ferrera 2012). However, as extensively stressed in the literature (Sacchi & Bastagli 2005; Ascoli 2011; Hemerijck et al. 2013; Madama, Natili & Jessoula 2013), the ‘recalibration momentum’ significantly weakened in the early 2000s.³ The reform setback highlighted the resilience of traditional patterns in social assistance. Moreover, as Madama, Natili and Jessoula argue (2013, p. 26), some new benefits in effect since the 1990s (e.g. a maternity allowance for uninsured mothers, benefit to families with more than three children, and support for low income tenants) have persistently been very low, hardly securing the family protection of low income and marginalised groups.

A steady process of negotiated reform started early in Spain, after the restoration of democracy. It effectively tackled fragmentation in pensions and healthcare, balanced actuarial criteria with improved coverage of less protected groups (workers with discontinuous contribution records, widows, orphans and others) and put social insurance on a sustainable track. It equally contributed to the overhaul of healthcare, culminating in the establishment of a devolved national health service (NHS). Particularly during the 2000s, until the eruption of the crisis, path-shifting ‘recalibration’ strategies in social care, gender mainstreaming and social assistance were pursued by both the conservative and socialist governments alternating in office. Among the key measures are the active integration income (in 2000), increased flexibility of maternity/paternity leave schemes, expansion of preschool childcare, progressive legislation on gender equality, and, just before the eruption of the crisis, the passing of legislation making social care for dependent people a social right (Guillén 2010).⁴

In Portugal the prospect of accession to the EU and, later on, the challenge of joining the EMU prompted consensual forms (through social pacts) of interconnected reforms in incomes, labour market, social security and welfare policies. The introduction of the RMI (minimum guaranteed income) and integrated ‘social insertion’ policies at a community level signpost a significant attempt to expand the field of social needs coverage. Yet, after entrance into the EMU, social pacting weakened and reform dynamism subsided.

In contrast, Greece hardly built any processes of negotiated reform in the previous decades. Focal actors (think tanks and policy communities) for driving policy debate were absent, decentralisation proceeded very slowly (with regard to social policies and programmes), and the scope of multilevel governance was limited (Petmesidou & Mossialos 2006; Petmesidou 2013). A tradition of statist–paternalistic forms of social organisation, closely linked with highly politicised, fragmented and conflictive industrial relations in this country, was persistently conducive to policy stalemates and reform impasses until the late 2000s.

Table 1 summarises the trends in total social spending and its main components, in the four countries, in the decades of the 1990s and 2000s until the crisis struck, and up to 2011 (for which disaggregated data are available). There is a noticeable trend of convergence of per capita social expenditure to the corresponding EU-15 average (measured in purchasing power standards, at constant 2005 prices) from 1990 until the late 2000s. But, particularly in Spain, Greece and Portugal, per capita (total) social spending did not improve as fast as per capita gross domestic product (GDP) (measured against the respective EU-15 average; see columns [6] to [11] in Table 1). This indicates that social expenditure has hardly ‘grown to its limits’ and casts doubts on the argument that welfare spending has been a major cause of the current fiscal woes of these countries. The last column of Table 1 depicts the percentage change of public social spending (in real terms) from 2007/08 to 2012/13...

Table of contents

• Cover
• Half Title
• South European Society and Politics series
• Title
• Copyright
• Contents
• Citation Information
• Notes on Contributors
• 1. Can the Welfare State as We Know It Survive? A View from the Crisis-Ridden South European Periphery
• 2. Reassessing South European Pensions after the Crisis: Evidence from Two Decades of Reforms
• 3. South European Healthcare Systems under Harsh Austerity: A Progress– Regression Mix?
• 4. ‘Social Investment’ or Back to ‘Familism’: The Impact of the Economic Crisis on Family and Care Policies in Italy and Spain
• 5. Welfare Performance in Southern Europe: Employment Crisis and Poverty Risk
• 6. The Distributional Impact of Austerity and the Recession in Southern Europe
• Index