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Fiscal Adjustment in Southern Europe: the Limits of EMU Conditionality

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  • Spyros Blavoukos
  • George Pagoulatos

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.

Suggested Citation

  • Spyros Blavoukos & George Pagoulatos, 2008. "Fiscal Adjustment in Southern Europe: the Limits of EMU Conditionality," GreeSE – Hellenic Observatory Papers on Greece and Southeast Europe 12, Hellenic Observatory, LSE.
  • Handle: RePEc:hel:greese:12
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    Cited by:

    1. Dimas, Christos, 2010. "Privatization in the name of ‘Europe’: analyzing the telecoms privatization in Greece from a ‘discursive institutionalist’ perspective," LSE Research Online Documents on Economics 31089, London School of Economics and Political Science, LSE Library.
    2. 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.
    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. Pagoulatos, George & Zahariadis, Nikolaos, 2011. "Politics, labor, regulation, and performance: lessons from the privatization of OTE," LSE Research Online Documents on Economics 33827, London School of Economics and Political Science, LSE Library.
    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. 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.
    7. 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.
    8. 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.
    9. Voskeritsian, Horen & Kornelakis, Andreas, 2011. "Institutional change in Greek industrial relations in an era of fiscal crisis," LSE Research Online Documents on Economics 41758, London School of Economics and Political Science, LSE Library.
    10. Lyrintzis, Christos, 2011. "Greek politics in the era of economic crisis: reassessing causes and effects," LSE Research Online Documents on Economics 33826, London School of Economics and Political Science, LSE Library.
    11. 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.
    12. 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.
    13. 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.

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    Keywords

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

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