1 Setting the Stage
On 20 August 2018, the third economic adjustment programme for Greece came to an end, symbolically marking the conclusion of almost a decade of bailouts. Nevertheless, ten years after its beginning, the consequences of the Eurozone crisis are still felt throughout Southern Europe.
As far as the economic dimension is concerned, the picture is mixed. Between 2007 and 2015, Greece lost about 25% of its gross domestic product (GDP), while in Spain and Italy, the jobs lost in the wake of the crisis have not been fully regained (MenĂ©ndez-ValdĂ©s 2018). Cyprusâ economy today seems to be set on a path of recovery in terms of economic output, but the crisis bequeathed rising levels of social inequality and high long-term unemployment (Ioannou and Charalambous 2017). Since the economic adjustment programme for Portugal ended in 2014, the Portuguese economy has been expanding, although there is an ongoing debate on whether this was due to the decision to end austerity measures in 2015 see or to broader recovery across Europe (see Gomes and Borges de Assuncao 2018; Lains 2018; Fernandes et al. 2018).
Arguably, however, the most relevant legacies of the Eurozone crisis do not pertain to the economic domain: the emergence of protest parties (Morlino and Raniolo 2017), the growth of Euroscepticism (Verney 2017), unprecedented levels of political instability (Bosco and Verney 2016), a shrinking of welfare states (Wulfgramm et al. 2016), higher levels of socio-economic inequality (Dolvik and Martin 2015) had a relevant impact on South European countries.
Considering all these elements, it is not surprising then that the crisis is described by some as a âcritical junctureâ in the history of European integration (Braun 2013; Heinrich and Kutter 2013; but see also Morlino and Raniolo 2017), as relevant reforms to the architecture of the Economic and Monetary Union (EMU) bound to have long-term consequences were negotiated in a relatively short time span. As further illustrated below, those reforms, including the so-called Six Pack, âTwo Packâ1 and the Treaty on Stability, Coordination and Governance in the EMU (TSCG), also referred to as âFiscal Compactâ, strengthened fiscal discipline and introduced new surveillance mechanisms, consistent with a âmorality taleâ narrative which presented the crisis as the result of the inability or unwillingness of EU periphery states to abide by the rules set in the Stability and Growth Pact (SGP) (Tsoukala 2013).
A theoretically sounder âconsensus narrativeâ (Baldwin et al. 2015) subsequently emerged, focusing on the âsudden stopâ nature of the crisis; according to this account, rather than by the profligacy of peripheral member states, the crisis was determined by unaddressed macroeconomic imbalances deepened and fed by the introduction of the single currency. Nevertheless, the EMU reforms negotiated and implemented between 2010 and 2015, as well as the underlying competing visions on whether and how to pursue further economic and fiscal integration, still spark debate today.
Looking at the past to gain some perspective on the present, it is therefore timely to provide a reappraisal of how those crucial reforms to the EMU were negotiated. In doing that, we aim to fill a gap in the literature on the politics of the Eurozone crisis in Southern EU member states, which exception made for Malta were seriously affected by the crisis. In this sense, this book aims to provide an in-depth analysis of the process of domestic preference formation in Cyprus, Greece, Italy, Malta, Portugal and Spain, based on novel data gathered in the framework of the Horizon 2020 project âThe Choice for Europe since Maastrichtâ (EMU Choices).
As further illustrated in the chapter by Sonja Puntscher Riekmann and Fabio Wasserfallen, the overarching objective of the EMU Choices project is to study EU member states preferences for further economic and financial integration, engaging with liberal intergovernmentalism (LI) as originally formulated by Andrew Moravcsik. According to this approach, European integration can be explained as the result of a tripartite process whereby the formation of actorsâ preferences which are mainly shaped by national economic interests; relative power, which determines the chances of success of certain policy options over others; and the institutionalisation of credible commitments (Moravcsik 1998, 2018).
The liberal intergovernmentalist paradigm arguably offers a compelling framework to analyse and explain the outcome of EU-level bargaining (see for instance Schimmelfennig 2015). In fact, research based on data gathered by the Horizon 2020 EMU Choices consortium (see Wasserfallen et al. 2018) lends support to the hypothesis that national economic interests indeed played a key role in shaping member statesâ preferences: as Tarlea et al (2019) showed, the structure of the banking sector in EU member states is a systematic predictor of variation in negotiating positions.
Nevertheless, when it comes to dissecting the process preference formation in South European countries, important qualifications are in order. As noted by Csehi and Puetter (2017), when the governments of member states reached the bargaining table their stances were often decoupled from other domestic interests which according to LI should have played a key role. This produced a situation where EU-level interaction was crucially relevant, while parliamentary and societal actors ended up being marginal to the preference formation process. The picture emerging from the case studies contained in this volume is indeed consistent with this understanding of domestic preference formation against the backdrop of the Eurozone crisis.
In their chapter, Xavier Coller and Fernando RamĂrez de Luis come to a similar conclusion with regard to Spain, a country whose governmentâs reaction to the crisis shifted from Keynesianism to austerity and whose preferences during the negotiations were widely shaped by the interpretation of the expectations of international actors, mainly the European Central Bank (ECB), the International Monetary Fund (IMF), the Ecofin and the Eurogroup, especially the German government. The chapters authored by Roderick Pace and Yiannos Katsourides focus on the cases of Malta and Cyprus respectively, applying the main tenets of LI to small EU states decision making vis-Ă -vis larger EU member states in the context of the Eurozone crisis. Taken together, the two cases offer an interesting mosaic, providing insights on why and how Malta managed to remain immune from the crisis while Cyprus was seriously hit by it.
In dissecting the Italian case, Cecilia Emma Sottilotta argues that in the time span considered, Italyâs preferences in terms of further European integration have apparently not reflected concrete economic interests as opposed to other general concerns, as liberal intergovernmentalist theory would suggest (Moravcsik and Schimmelfennig 2009). Her chapter shows that rather than following a vincolo esterno logic or a process of domestic deliberation, Italyâs stances were essentially dictated by the short-term imperative to reassure financial markets and avoid a direct intervention of the troika, that is the IMF, the European Commission and the ECB, which were jointly in charge of enforcing structural adjustment programmes for bailout member states.
The articulation of domestic preferences was problematic also in the case of Greece. Dimitri Sotiropoulosâ chapter unpacks the sequence of choices and circumstances that produced a loss of interest by Greek governments in proactively participating in decisions on European integration during the crisis and highlights the long-lasting political consequences of the crisis for Greece, in particular as far as the implosion of the Greek party system is concerned. In their contribution, Marco Lisi and Vera Ramalhete explain how Portugalâs traditionally pro-integration stances were significantly constrained by the countryâs predicament during the negotiations, while in the immediate aftermath of the Portuguese bailout the countryâs preferences were mostly stable, crucially influenced by the political and ideological positions of the core executive, and based on the determination to go even âbeyond the troikaâ in fiscal consolidation.
In sum, the contribution of this volume to the debate on Southern Europe and the Eurozone crisis is twofold. On the one hand, it provides a nuanced, empirically rich account of Eurozone crisis decision making in each of the six Southern EU member states. On the other hand, engaging with LI it contributes to problematising the aspect of domestic preference formation during the crisis.
The next section provides an overview of the unfolding of the Eurozone crisis and of the reforms under scrutiny, also introducing the contested issues which were selected as case studies to analyse domestic preference formation in t...