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Fiscal Adjustment in Southern Europe: the Limits of EMU Conditionality

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  • Spyros Blavoukos
  • George Pagoulatos
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    Abstract

    The EMU fiscal adjustment paths of the four Southern Europe members (Italy, Spain, Greece, and Portugal – SE-4) vary along two dimensions: a) cross-temporal (pre- and post-EMU accession) and b) cross-country. We account for the cross-temporal variation by distinguishing between the ‘hard’ and ‘softer’ EMU conditionality of the pre- and post-accession stage. External constraints in the form of the Maastricht eligibility criteria constituted a significant common ‘push’ factor in the fiscal stabilization process of EMU candidate countries throughout the 1990s. However, their potent does not necessarily lead to fiscal sustainability as demonstrated by the postaccession budgetary outlook of the SE-4. We account for the crosscountry variation by introducing additional ‘pull’ factors related to the reform content, context and capability (such as unemployment, the level of social concertation, and government effectiveness). Only in cases where such factors were at work did governments engage in structural reforms to consolidate public finances instead of the less controversial path of macroeconomic policy reform.

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    Bibliographic Info

    Paper provided by Hellenic Observatory, LSE in its series GreeSE – Hellenic Observatory Papers on Greece and Southeast Europe with number 12.

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    Date of creation: Mar 2008
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    Handle: RePEc:hel:greese:12

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    Keywords: EMU; Southern Europe; Stability and Growth Pact; conditionality; fiscal policy.;

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    References

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    1. von Hagen, Jürgen, 2005. "Fiscal Rules and Fiscal Performance in the EU and Japan," CEPR Discussion Papers 5330, C.E.P.R. Discussion Papers.
    2. André Sapir & Marco Buti, 1998. "Economic policy in EMU," ULB Institutional Repository 2013/8078, ULB -- Universite Libre de Bruxelles.
    3. C. John McDermott & Robert F. Wescott, 1996. "An Empirical Analysis of Fiscal Adjustments," IMF Staff Papers, Palgrave Macmillan, vol. 43(4), pages 725-753, December.
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    5. Alberto Alesina & Roberto Perotti, 1996. "Fiscal Adjustments in OECD Countries - Composition and Macroeconomic Effects," IMF Working Papers 96/70, International Monetary Fund.
    6. repec:fth:eeccco:148 is not listed on IDEAS
    7. Alberto Alesina & Roberto Perotti & José Tavares, 1998. "The Political Economy of Fiscal Adjustments," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 29(1), pages 197-266.
    8. Nouriel Roubini & Jeffrey Sachs, 1989. "Government Spending and Budget Deficits in the Industrial Economies," NBER Working Papers 2919, National Bureau of Economic Research, Inc.
    9. Frank Schimmelfennig & Stefan Engert & Heiko Knobel, 2003. "Costs, Commitment and Compliance: The Impact of EU Democratic Conditionality on Latvia, Slovakia and Turkey," Journal of Common Market Studies, Wiley Blackwell, vol. 41(3), pages 495-518, 06.
    10. Rotte, Ralph & Zimmermann, Klaus F, 1998. " Fiscal Restraint and the Political Economy of EMU," Public Choice, Springer, vol. 94(3-4), pages 385-406, March.
    11. Jürgen von Hagen & Andrew Hughes Hallett & Rolf Strauch, 2001. "Budgetary Consolidation in EMU," European Economy - Economic Papers 148, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission.
    12. Busemeyer, Marius R., 2004. "Chasing Maastricht: The Impact of the EMU on the Fiscal Performance of Member States," European Integration online Papers (EIoP), European Community Studies Association Austria (ECSA-A), vol. 8, 07.
    13. James Hughes & Gwendolyn Sasse & Claire Gordon, 2004. "Conditionality and Compliance in the EU's Eastward Enlargement: Regional Policy and the Reform of Sub-national Government," Journal of Common Market Studies, Wiley Blackwell, vol. 42(3), pages 523-551, 09.
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    Citations

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    Cited by:
    1. Nicholas Apergis, 2011. "Characteristics of inflation in Greece: Mean Spillover Effects among CPI Components," GreeSE – Hellenic Observatory Papers on Greece and Southeast Europe 43, Hellenic Observatory, LSE.
    2. Vassilis Monastiriotis & Jacob A. Jordaan, 2011. "Regional Distribution and Spatial Impact of FDI in Greece: evidence from firm-level data," GreeSE – Hellenic Observatory Papers on Greece and Southeast Europe 44, Hellenic Observatory, LSE.
    3. Eugenia Markova, 2010. "Effects of Migration on Sending Countries: lessons from Bulgaria," GreeSE – Hellenic Observatory Papers on Greece and Southeast Europe 35, Hellenic Observatory, LSE.
    4. Theodore Pelagidis, 2010. "The Greek Paradox of Falling Competitiveness and Weak Institutions in a High GDP Growth Rate Context (1995-2008)," GreeSE – Hellenic Observatory Papers on Greece and Southeast Europe 38, Hellenic Observatory, LSE.
    5. Christos Lyrintzis, 2011. "Greek Politics in the Era of Economic Crisis: Reassessing Causes and Effects," GreeSE – Hellenic Observatory Papers on Greece and Southeast Europe 45, Hellenic Observatory, LSE.
    6. Christos Dimas, 2010. "Privatization in the Name of ‘Europe’: analyzing the telecoms privatization in Greece from a ‘discursive institutionalist’ perspective," GreeSE – Hellenic Observatory Papers on Greece and Southeast Europe 41, Hellenic Observatory, LSE.
    7. George Pagoulatos & Nikolaos Zahariadis, 2011. "Politics, Labor, Regulation, and Performance: lessons from the privatization of OTE," GreeSE – Hellenic Observatory Papers on Greece and Southeast Europe 46, Hellenic Observatory, LSE.
    8. Horen Voskeritsian & Andreas Kornelakis, 2011. "Institutional Change in Greek Industrial Relations in an Era of Fiscal Crisis," GreeSE – Hellenic Observatory Papers on Greece and Southeast Europe 52, Hellenic Observatory, LSE.
    9. George Kazamias, 2010. "From Pragmatism to Idealism to Failure: Britain in the Cyprus crisis of 1974," GreeSE – Hellenic Observatory Papers on Greece and Southeast Europe 42, Hellenic Observatory, LSE.
    10. Stelios Karagiannis & Yannis Panagopoulos & Prodromos Vlamis, 2010. "Symmetric or Asymmetric Interest Rate Adjustments? Evidence from Greece, Bulgaria and Slovenia," GreeSE – Hellenic Observatory Papers on Greece and Southeast Europe 39, Hellenic Observatory, LSE.

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