Europe Managing the Crisis

The politics of fiscal consolidation

Walter Kickert, Tiina Randma-Liiv

• Editore: Routledge
• Anno: 2015
• ISBN:
  9781317525691
• Edizione: 1
• Argomento: Business
• Categoria: Business General

Studies of the recent financial crisis have been largely dominated by economists, but the similarities and differences between European countries' response reflect both economic and political perspectives which have resulted in considerable differences in their decisions.

Drawing on uniquely comprehensive research data, this book presents an in-depth comparative analysis of how 14 European governments tackled the challenge of fiscal consolidation, and analyses the political decision-making behind these measures. By exploring national responses not just in fiscal terms, but also from a political perspective, it reveals that decision making has been driven by political factors with profound effects on public administration and management.

This ground-breaking book fills an important gap in the research literature for scholars of public management, public administration and policy, and will be a benchmark for future work on the global economic crisis.

Part 1 Introduction

1 Introduction

DOI: 10.4324/9781315722689-1

For much of the recent past, the main occupation of European governments has been to make cutbacks. That is, to ensure the restoration of sound public finances via the reduction of excessive budget deficits through cuts to public expenditures and rises in tax revenues. Politicians, governments and administrations have been repeatedly confronted with the unpleasant necessity of this thankless task.

Since the outbreak of the global financial crisis in 2008 and the following economic crisis, public finances have come under enormous pressure. The worldwide financial system suddenly, unexpectedly, and completely collapsed. While initially many continental European governments hoped this US-originated crisis would not spread to their economies, European domestic economies were soon infected by the effects of the crisis on the international financial markets. Economies deteriorated, business declined and unemployment rose. Despite governments immediately launching economic recovery measures, European economies continued to slow, and in many countries they have only recently, and slowly, recovered. This has led to mounting public budget deficits, which, by necessity, have had to be reduced – whether governments and politicians have liked that thankless task or not.

At first, politicians in most countries tried to avoid unpopular cutbacks, primarily by disputing the necessity and strictness of budget deficit ceilings, such as the EU norm of 3 per cent. Alternatively, politicians tried to postpone budget cutbacks, leaving them for the next administration to cope with. But whatever their tactics to buy time, sooner or later cuts became inevitable, and unfortunately not just once, but in many successive rounds. Economies continued to perform disappointingly, and economic recovery took more time than expected. National public finances repeatedly turned out to be less optimistic than hoped for, and a next round of cutbacks had to be made. Political authorities faced sometimes massive protests and social interest, and hard decisions about where and when to cut. This has been the reality for many European countries for several years. Governments and politicians are constantly employed with, and often overwhelmed by, making decisions about cutbacks. And although the early signals of fragile economic recovery now seem more than just wishful thinking, the task is not yet over by some long way.

In this book, we will describe, analyse and explain how European governments handled the crisis, from a political and administrative science perspective. Much of our international, predominantly English-speaking, audience will be acquainted with how the United States and the United Kingdom handled the crisis, and probably the German and French cases, to some extent. Most other European countries are, however, less known to the international audience. Who is knowledgeable about the smaller Western European countries, such as Belgium, Ireland and the Netherlands? Who knows how the crisis impacted the Central and Eastern European countries of Estonia, Hungary and Lithuania? And although a larger international audience is aware of the depth of the crisis in Southern Europe, very little is known about what exactly happened in countries such as Italy and Spain.

In this book, we consider how fourteen large and small countries in Western, Southern and Eastern Europe – Belgium, Estonia, France, Germany, Hungary, Iceland, Ireland, Italy, Lithuania, the Netherlands, Norway, Slovenia, Spain and the United Kingdom – have managed the fiscal crisis. This range and scope makes this book highly informative to the international audience, not only to the academic audience, but also to practitioners and policy-makers who will be interested in the many country examples. We hope these provide helpful insights into how the complex problems they face have been addressed elsewhere.

This book seeks to introduce to an Anglo American audience various European approaches to managing the crisis, as well as informing Europeans about the way the crisis was handled by their neighbours. It encourages readers to view national distinctiveness in an international comparative perspective. And in the final discussion section, when we are less hindered by methodological and empirical limitations from making statements about countries outside Europe, we tentatively compare the European experience with other parts of the world – the United States, Japan, India, and the upcoming economic superpower, China.

The first question addressed in this book is how fourteen countries in Western, Southern and Eastern Europe managed in the period 2008–2012. How did European governments respond to the fiscal crisis? What fiscal consolidation and cutback measures were undertaken by governments to reduce the increasing budget deficits? How did the political decision-making leading up to these measures take place?

The attentive reader may have noticed that we employed the terms ‘describe, analyse and explain’ in the above formulation of our book’s objective. The book is not only descriptive and informative, but also analytical and explanatory. In this book, we analyse and explain, primarily from an administrative and political science perspective, how European governments responded to the crisis. Although both authors are scholars in politics and administration, rather than economics and public finances, this by no means makes the economic perspective less relevant. On the contrary, it is obvious that fiscal consolidation and cutbacks are, first and foremost, concerned with decisions about budgets, about economic facts and figures. Naturally, the economic perspective on how governments managed the financial and economic crisis is paramount is reflected in the many publications on the subject from this perspective; a review of twenty-one books about the financial crisis written by academics, journalists and a practitioner (Lo 2011) reveals that, despite the many different and often contradictory perspectives used, all are written from an economic point of view.

This book pays attention not only to the economic aspects of the fiscal consolidation measures taken by governments, but also pays particular attention to the political aspects of the decision-making processes leading up to these measures. Did politics matter in managing the crisis? Studies by political and administrative scholars are only beginning to appear, and there are only a limited number of publications on the current fiscal crisis and cutbacks in the fields from the perspective of political, administrative and public management sciences. So, the second question addressed in this book is how the fiscal consolidation measures that were taken by European governments can be analysed and explained from both an economic and a political perspective.

After elaborating the political perspective in the next chapter, we adopt an analytical framework that focuses on both the contents of the cutback measures and the political decision-making processes. We pay special attention to the characteristics of decision-making – the distinction between across-the-board (cheese-slicing) cuts, on the one hand, and targeted (selective) cuts based on political priorities, on the other. Moreover, attention focuses on the typical political characteristics of cutback decision-making, that is, that it takes place in a series of stages, usually beginning with denial of the gravity and duration of the crisis, gradually leading to compliance with the need for cutbacks, and only ultimately resulting in targeted cuts and political priority-setting.

In its comparative analysis of how fourteen European countries managed the fiscal crisis, the book focuses on key questions. What were the similarities and differences between the countries? How can the similarities and differences between the countries be explained? The individual country studies are framed in an internationally comparative perspective with the aim of comparing the similarities and differences between countries, from both an economic and a political perspective. What financial-economic factors explain the variation in the fiscal consolidation measures of the various governments? What political-administrative factors have explanatory power? And what other factors have a significant influence on fiscal consolidation?

It is self-evident that economic factors play a principal role in explaining fiscal consolidation measures. After all, fiscal consolidation is aimed at reducing the budget deficit and rise of state debt, so the financial and economic ‘size’ of the fiscal crisis evidently influences the ‘size’ of the consolidation measures.

The size of fiscal consolidation will depend on the economic and budgetary situation in a country prior to the crisis, and our comparative analysis, of course, confirms this.

Did politics also matter in fiscal consolidation? While the economic size of fiscal consolidation is chiefly explained by the prior economic and budgetary circumstances, we may yet expect political decision-making to be influenced by political-administrative factors as well. The in-depth country case examples make it clear that political factors play a role in explaining how governments handled the crisis. In the countries hit most severely by the crisis, the political aspects seem to dominate cutback decision-making. From an international comparative perspective, however, the explanatory evidence becomes less clear. How did the type of state structure affect decisions? How did the type of government affect decisions? Were single-party governments better able to take hard cutback decisions than multi-party coalitions? Were grand majority coalitions better able than coalitions with merely parliamentary minority? Did the political orientation of governments play a role? The common assumption is that right-wing parties in government tend to take swifter and harder cutback decisions than left-wing parties. How did the electoral cycle affect cutback decisions? Were politically unpopular cutback decisions postponed when general elections approached?

And finally, how did it work out? For academic scientists, an international comparative analysis per se may be interesting enough, but our guess is that practitioners, politicians and policy-makers are, above all, interested in the question of how it worked. Was fiscal consolidation successful? Which country did better, ...