The Political Consequences of Austerity in Southern Europe

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Lisbon, July 2013

So I have written a blog post (both in Spanish on El Diario’s Agenda Publica and in English on the LSE’s Europp blog) that seeks to explain why the Portuguese party system has stayed relatively stable in the face of austerity policies while the Greek party system has exploded. The main arguments were

1)   that the more extensive nature of party patronage in Greece has made mainstream parties more vulnerable to austerity policies . Since they relied quite heavily on the distribution of rents (public sector jobs, pensions and social benefits targeted at specific groups) as a way to reward voters, they collapsed when these tools were ruled out by Troika-imposed austerity. Portuguese parties, by contrast, could not really rely on these strategies in the run-up to the crisis because of low growth and deteriorating public finances. No growth, no leeway to distribute rents, better resilience.

2)   that responsibility was easier to attribute in the Greek case, where PASOK ruled alone in the run-up and in the direct aftermath of the bailout, whereas the Portuguese PS and PSD formed an informal coalition which diluted responsibility. I wrote that in the political context of Southern Europe, where everything you do is bound to be unpopular, the only solution left for parties if they want to survive may be to form a political cartel to defuse blame.

A few points of background: I came up with the first part of the argument while working on a paper with two Greek colleagues. Obviously, it is quite difficult to test empirically but I thought it would be worth throwing it out there. The second was inspired by existing arguments about the politics of blame avoidance in welfare state reform (for instance here). Since, I only wrote about two countries, it is obviously difficult to say which mechanism is the most important. Moreover, one can think of a number of other reasons that can explain variations in outcomes, such as historical traditions, different cultures of protest, etc. I am personally skeptical towards cultural explanations because anything can be explained by culture, but it’s probably a matter of taste. As a political economist, I tend to favour explanations that involve some form of material/economic interest.

The post has generated a number of reactions. Some said it was just utter nonsense and that I didn’t know what I was talking about. I suspect that the argument may have come across as saying that democratic politics is alive and well in Portugal as compared to Greece where democracy is on the brink of collapse. This is really not what I meant. Recent polls indicate that 88% of Portuguese citizens do not trust the government (see this as well, which points to similar developments elsewhere in Southern Europe). The question is to know when this distrust and anger translates into the collapse of existing parties (as in Greece or Italy) and when it translates into abstention and apathy (as in Portugal and perhaps Spain). This latter occurrence is of course damageable for democracy, but as far as party competition is concerned, it does not change much.

Pedro Magalhães from the Insitute of Social Sciences in Lisbon has posted a well-thought reply that takes a critical take on some of the arguments. I am sincerely honoured that somebody took the time to take on these ideas. The points raised by Magalhães have to do with the generalizability of the argument, and the idea of the political cartel as the only viable option for parties to survive. These are very valid points and I thought I’d say a few things about them.

Magalhães rightly points that the two countries where the party system seems to have been substantially transformed are precisely those where technocratic governments were formed, namely Italy and Greece. In these countries, technocratic governments or grand coalitions have generated a backlash, with the electoral surge of Beppe Grillo’s Movimento Cinque Stelle in Italy and Syriza or Golden Dawn in Greece. I think that this evolution has a lot in common with the rise of the populist radical right in so-called “consensus” democracies such as Austria, Switzerland, Denmark or the Netherlands. In these countries, coalition governments have de facto constituted a political cartel that isolated policymaking from electoral pressure for years. Writing about Switzerland and Austria in 2000, Richard Rose wrote that “a grand coalition is vulnerable to becoming a monopoly unresponsive to new issues. Sooner or later, some citizens will abandon established loyalties and vote for the rascal they do not know in preference to those that they know too well”. In many ways, this could apply very well to what has happened in Greece and Italy, and goes along Magalhães’s argument. When you seek to insulate policymaking from electoral politics, you are bound to face severe anti-system protest and electoral setbacks.

Now, when I wrote that forming a political cartel was probably the only viable option for parties to survive, I was probably wrong. In fact, after giving it some thought, I think that there are two strategies mainstream parties (those with an aspiration to govern) can pursue in the context of the crisis, and each of them has severe electoral drawbacks. Basically, there is the “plague” option and the “cholera” option.

  1. They can collude and form a cartel to implement austerity and commit not to blame each other (Kent weaver calls it « circling the wagons »), which sooner or later may cause an electoral backlash and the strengthening of anti-system parties as discussed above. This is the Greek and Italian case.
  2. Opposition parties can oppose austerity and blame the government for licking the boots of the Troika (“jump on the bandwagon”). The problem of this strategy is that agenda control in Southern Europe is extremely reduced in the current set of supranational/economic constraints. If you blame the government for austerity but want to stay in the eurozone, you will probably have to carry out the very same type of policies that you oppose when you come back to office. One way or another, you will have to betray your voters and face the electoral consequences. You can make voters believe that normal political competition can take place and that alternative agendas exist, but there is in fact only one policy option and it is largely dictated from outside.

There are still a number of questions that I still can’t figure out. For instance, why has Syriza become the first party on the left in Greece, while the Portuguese Bloco de Esquerda or the Communist party do not seem to have benefitted from the crisis? As I said elsewhere, I suspect that there is a pervasive tendency of Portuguese citizens to choose exit rather than voice, notably through emigration and/or abstention, while this tendency is not present in Greece. I would be quite curious to discover ways to investigate this link empirically.

How Austerity Killed Greek Parties, While Portuguese Parties Survived

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This shows the electoral score of the two mainstream parties in Greece and Portugal in 2009 (before the outbreak of the crisis) and in 2011 (in Portugal) and 2012 (in Greece), after the outbreak of the crisis. For Greece, this shows the results of the May elections; new elections were held in June as no governmnet could be formed. What is striking is how mainstream Portuguese parties have been resilient compared to Greek parties, and especially PASOK, which completely collapsed. The cumulative vote share of the PS and the PSD remained stable, while it lost 42% in Greece. As we know, support for fringe parties has soared in Greece (Syriza, Golden Dawn) while radical left  parties in Portugal (Bloco de Esquerda and the Communist Party) have remained at astonishingly low levels.

I see two explanations for this. First, as I argued here, Portuguese citizens seem to prefer “exit” (abstention, emigration) over “voice”. Second, the base of support for Greek parties drew heavily on a spoils system (public sector jobs, pensions, cartelistic rights) and they didn’t differ much ideologically. By reducing public spending and removing these cartelistic rights, austerity directly undermines their base of support. Since PASOK and ND could no longer offer rents to voters because the money was gone, voters abandoned them. In Portugal, austerity had started before the crisis, as the 2000s were a lost decade in terms of growth (no real estate bubble). Hence, parties could not rely on the kind of spoils system that PASOK and ND drew on. There is some data on party patronage that shows these differences.

The Size of Austerity

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Cumulative size of austerity packages as a % of GDP, 2010-2013

The data come from Andrew Watt’s and Sotiria Theodoropoulou’s ETUI report, (p. 14) based on a survey of country experts. Some data, from Italy and Spain most notably, are missing. This is partly based on 2011 estimates, and as we know forecasts have been all but reliable. There is more data on this on the Washington Post’s wonkblog and the Guardian writes this about the UK.

What the Guardian doesn’t explain is whether the coalition wants to “shrink the state” through (1) net cuts in spending or (2) by keeping its progression lower than economic growth. From the data it seems that it’s been (1) until now and it should be (2) from now on. Of course, (2) depends on the return of growth, but since it’s still waiting for the confidence fairy, we may be stuck with (1).

Portugal’s Political Crisis, or the Ordeal of Junior Coalition Partners

On Monday, the Portuguese Finance Minister Vitor Gaspar resigned. Gaspar was the main architect of  Portugal’s austerity drive since its bailout two years ago. His political charisma was akin to a flat bike tyre, but he was considered a major guarantee of credibility for the Troika and Portugal’s creditors. Apparently, he had already asked to resign last year after the constitutional court invalidated a number of the austerity measures contained in his budget for 2013. However, his resignation was then denied by the Prime Minister Pedro Passos Coelho.

Yesterday, the Minister for Foreign Affairs and leader of the minority coalition partner CDS-PP, Paulo Portas also asked to resign to protest against the nomination of Gaspar’s replacement, Maria Luis Albuquerque. Earlier this year, he had already expressed his disagreement with some of the austerity measures carried out by his own government, notably an increase in the taxation of pensions. This would badly hurt his traditional electorate of pensioners, but he acquiesced because it was a condition imposed by the Troika.  Since he is the leader of the minority coalition partner, it would have been difficult to imagine his party staying in the coalition, and early elections were probably the most likely outcome. However, once again, Pedro Passos Coelho refused Portas’s resignation, saying it was premature. Passos Coelho said he wouldn’t resign either despite the unpopularity of his government. We don’t really know what’s going to happen now. Passos Coelho said he would talk to the CDS-PP to maintain a majority, but all its ministers seem to have their resignation letter ready. Nobody knows what’s happening next, but Portuguese bond yields have soared, making another bailout quite likely.

There are two conclusions that can be drawn from this.

First, excessive employment protection may indeed really be a problem in these PIGS countries. Two ministers want to quit (perhaps to do something more productive, like pet food taster or nude cruise worker), and they simply won’t let them. However, this may only apply to ministers, because liberalising the labour market doesn’t seem to improve things for everybody else.

Second, this shows the dilemma of small parties like the CDS-PP when they coalesce with conservative parties that implement austerity. Even if there is no real populist radical right party  (PRRPs) in Portugal, the electorate of the CDS-PP is pretty similar to that of PRRPs elsewhere in Europe: pensioners, farmers and other groups that often depend on government transfers. These parties have electorates that are attached to the welfare state, but they can only coalesce with right-wing parties that are likely to retrench it. As a consequence, they take the blame for policies that they don’t really want in the first place. Something very similar happened with the Austrian FPÖ when they were in a coalition with the conservative ÖVP between 1999 and 2006. They supported a number of retrenchment policies which hurt their own electorate, and the party collapsed in 2002, giving birth to a splinter group, the BZÖ. More recently, in the Netherlands, Geert Wilders’s PVV agreed to support the first (minority) right-wing cabinet of Mark Rutte (VVD) without formally taking part in government. The government engaged  in harsh austerity measures in the aftermath of the financial crisis, and Wilders eventually withdrew his support because of disagreements about the size of austerity measures, notably about pensions, causing the cabinet to fall. In the following elections, the PVV lost a third of its votes. Similarly, even if their electorate is different, the electoral prospects of the Liberal Democrats in the United Kingdom look fairly grim after they had to betray a number of their electoral promises, notably not to raise tuition fees. For these parties, it seems really difficult to hold office and keep voters at the same time.

L’austérité au Portugal: de la dictature de Salazar au diktat de la Troika

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Même s’il  a été l’un des pays les plus touchés par la crise de la zone euro, le Portugal n’a pas fait beaucoup de vagues malgré une situation économique catastrophique. Au contraire, le gouvernement de Pedro Passos Coelho arrivé au pouvoir en 2011 a été un bon élève de la Troika, et a diligemment mis en œuvre les mesures d’austérité que celle-ci a imposées malgré les conséquences dramatiques sur la consommation. Malgré un taux de chômage à 18% (42% chez les jeunes), le troisième plus élevé de l’UE, et un PIB qui a décru à son niveau de 2001, le pays n’a pas subi l’effondrement des partis traditionnels et l’émergence de l’extrême droite comme en Grèce, ni l’instabilité politique que l’on a pu voir en Italie. Comparées aux scènes de guerre diffusées depuis Athènes, les manifestations anti-austérité qui ont eu lieu a Lisbonne ont semblé bien paisibles. Cette apparente résignation peut s’expliquer en partie par l’importance du canal traditionnel de résolution des tensions sociales : l’émigration.

Contrairement à la Grèce, à l’Espagne ou à l’Irlande, le Portugal n’a pas connu de bulle immobilière depuis son entrée dans l’euro. Alors que ces pays ont connu une période faste soutenue par des taux d’intérêt bas alignés sur l’Allemagne, le Portugal, comme l’Italie, a traversé une décennie perdue marqué par la stagnation économique, la détérioration des finances publiques et l’endettement privé. Avec l’euro a un niveau surévalué, ses exportations ont perdu en compétitivité et sa balance commerciale s’est déséquilibrée, surtout face aux nouveaux pays de l’UE à la main d’œuvre moins chère et souvent mieux qualifiée.  Dans ce contexte, l’austérité a commencé bien avant la crise de l’euro. Le gouvernement socialiste de José Socrates arrivé au pouvoir en 2005 avait déjà entamé un bon nombre de réformes impopulaires pour réduire les déficits publics.  Après 2009, les taux d’intérêts sur la dette ont pris l’ascenseur, et les socialistes, cette fois à la tête d’un gouvernement de minorité, ont négocié une série de paquets d’économies avec l’opposition de droite. Ces mesures incluaient un gel des salaires de la fonction publique et des prestations sociales, combinées avec des hausse d’impôts considérables.

En avril 2011, après que l’opposition a refusé de soutenir le quatrième paquet d’économie, Socrates a démissionné et demandé en catastrophe l’assistance financière de la BCE, de l’UE et du FMI, devenant ainsi le troisième pays a être secouru par la Troika. Durant la campagne électorale qui a suivi, le chef de l’opposition Pedro Passos Coelho avait promise d’aller « plus loin que la Troika » dans la réduction des déficits publics. Après son élection, la droite a en effet poursuivi et poussé encore plus loin la politique d’austérité des socialistes sous les auspices de la Troika. Les 13e et 14e salaires de la fonction publique ont été suspendus, et le budget 2013 prévoyait les augmentations d’impôt les plus importantes depuis la fin de la dictature. La plupart des entreprises publiques ont été ou sont sur le point d’être vendues : la compagnie d’électricité EDP a passé sous contrôle chinois, la compagnie aérienne TAP est à la recherche d’un repreneur, et le gouvernement souhaite également privatiser la télévision publique RTP. Ces réformes, destinées avant tout à impressionner la Troika, ont été un échec quant à la réduction de la dette et au retour de la croissance. Les prévisions ont été maintes fois revues à la baisse en raison des effets multiplicateurs des coupes budgétaires. Même si l’opposition socialiste a récemment adopté une posture plus combative, elle est consciente qu’elle même a adopté les mêmes politiques auparavant, et n’a pas de menace crédible sur sa gauche. Le vieux Parti Communiste et le Bloc de Gauche ont été incapables de tirer profit de la crise. Contrairement à la Grèce et à l’Italie, les Portugais semblent préférer voter avec leurs pieds plutôt que dans les urnes. Depuis 1998, 1 million de personnes sont parties pour fuir la stagnation économique, notamment vers la Suisse, et cette tendance s’est fortement accélérée au cours des trois dernières années. En 2011, plus de 100’000 portugais ont émigré, un niveau similaire aux grandes vagues des années 1960, lorsque la dictature de Salazar tolérait l’émigration pour réduire les tensions sociales. Entre Salazar et la Troika, beaucoup de Portugais qui ont manifesté récemment en brandissant les symboles de la révolution des œillets pensent que peu a changé.

Publié dans Pages de Gauche, Juin 2013.