Fiscal Consolidation in the Euro Crisis : Politico-economic and Institutional Causes

This book sheds new light on if and why, between 2009 and 2015, European governments succeeded or failed in initiating and actually realizing some of the farthest-reaching austerity plans in modern history. The author analyzes the economic and political context and the underlying causes of austerity and economic adjustment packages during the Euro crisis. In doing so, he shows that austerity has its roots in an institutional mismatch between capitalist diversity in the Eurozone on the one hand, and an ill-conceived common economic regime on the other. In this context, austerity trumped politics, and even democracy itself. The book will appeal to scholars of political science and comparative political economy, as well as governmental policymakers and practitioners in the finance sector. Acknowledgements 5 Contents 6 Abbreviations 8 List of Figures 10 List of Tables 11 1 Introduction 13 1.1 Research Questions, Object of Study, and Relevance 19 1.2 Theoretical Framework and Argument in Brief 23 1.2.1 Capitalist Diversity in the EMU 24 1.2.2 EMU’s Economic Regime 25 1.2.3 Institutional Roots of the Euro Crisis 26 1.2.4 Constrained Policy Options 27 1.2.5 Enforcement 28 1.2.6 EMU Versus Democracy 30 1.3 Structure 31 2 Fiscal Adjustment in Europe 33 2.1 The Concept of Austerity in the Context of the Euro Crisis 33 2.2 Operationalization of Austerity 37 2.3 Data and Measurement 42 2.4 Sample and Observation Period 47 2.5 Occurrence, Implementation, and Realization of Fiscal Consolidation 48 2.5.1 Planned (2-Year) Fiscal Policy Stances 48 2.5.2 Occurrence and Size of Austerity Plans 54 2.5.3 Plan Realization in the Euro Crisis 58 2.6 Chapter Conclusion 64 3 Theoretical Framework: Austerity’s Institutional Origins 66 3.1 Economic and Politico-economic Roots of the Argument 70 3.2 The Politico-economic Trilemma of EMU 77 3.3 Intra-EMU Diversity as an Imbalance of Capitalisms 80 3.4 An EMU Economic Regime Common to All 89 3.5 The Euro Crisis: Institutional Misfit and Its Consequences 93 3.6 Trilemma at the Country-Level: Who Has to Consolidate? 100 3.6.1 Export-Led Growth Models with NIIP Surpluses 101 3.6.2 Demand-Led Growth Models with NIIP Deficits 102 3.7 Hypotheses 109 4 Empirical Analyses: Intra-EMU Heterogeneity and Austerity 115 4.1 Determinants of Macroeconomic Imbalances 115 4.2 Determinants of Austerity in the Euro Crisis—Descriptive Analysis 120 4.2.1 Determinants of Planned Fiscal Stances 121 4.2.2 Determinants of the Initiation and Size of Austerity Plans 123 4.3 Determinants of Austerity in the Euro Crisis—Regression Analysis 124 4.3.1 Main Explanatory Variable(s) and Multicollinearity 124 4.3.2 Regression Models of Planned Fiscal Stances 126 4.3.3 Regression Models of the Initiation of Austerity Plans 135 4.3.4 Regression Models of the Size of Austerity Plans 138 5 Adjustment by Force: The Realization of Austerity 142 5.1 Descriptive Analysis 142 5.2 TSCS Models of the Realization of Austerity 146 6 Conclusion 161 Appendix A: Dataset of Fiscal and Economic Plans 170 A.1 Introduction 170 A.2 Variables on Fiscal and Economic Plans (Ex Post and Ex Ante Data) 172 Appendix B: Variables, Operationalizations, and Data Sources 175 B.1 Fiscal and Economic Variables (Ex Post) 175 B.2 Plans for Fiscal and Economic Variables (Ex Ante) 178 B.3 Austerity Plan Variables 180 B.4 Realization of Plans (Ex Ante vs. Ex Post) 182 B.5 Other Variables 185 References 188