Crisis Politics in Europe

Abstract

When countries face balance-of-payments crises, their policy responses vary widely. This article argues that the choice between the two main options of internal adjustment (i.e., austerity and structural reforms) and external adjustment (i.e., exchange-rate devaluation) depends on how costly each of these strategies is for a country overall. Although the choice of adjustment strategy is thus structurally determined, the level of political conflict associated with crisis management depends on both the national vulnerability profile and partisan interests. Moreover, irrespective of the adjustment strategy, all governments design the specific reforms in ways that shelter their own voters. Empirically, this article uses qualitative case studies and survey data to examine the significant variation in crisis responses, crisis politics, and distributive outcomes of the 2008-2010 global financial crisis in eight Eastern European countries. The article concludes with a discussion of the implications of the Eastern European experience for crisis politics in the Eurozone crisis.

The Costs of Austerity: Labor Emigration and the Rise of Radical Right Politics in Central and Eastern Europe

“…Furthermore, there is a strong strain of Euroscepticism among the European radical right, meaning that at least some of the growth in radical right support is driven by anti-EU sentiment and fears about loss of sovereignty due to EU enlargement (Kentmen-Cin and Erisen, 2017). Finally, much of the austerity undertaken in CEE was at the behest of the EU and the IMF, further complicating the relationship between the EU and austerity in CEE (Santa, 2012;Cankar and Petkovsek, 2013;Walter, 2016).…”

“…The Southern European countries, most notably Greece, Italy, Portugal, and Spain, were heavily impacted by the downturn in markets following the 2008 financial collapse, and the subsequent austerity measures imposed by the EU and the International Monetary Fund (IMF) were highly controversial (Koukiadaki et al, 2016). In Greece, in particular, austerity has been tied to increasing political unrest and polarization (Walter, 2016). Conversely, of the eight CEE countries studied here, only Hungary and Romania received bailout packages from the IMF, while Slovenia and Slovakia, as parts of the Eurozone, implemented austerity measures in accordance with European Monetary Union guidelines (Santa, 2012;Cankar and Petkovsek, 2013;Walter, 2016).…”

“…In Greece, in particular, austerity has been tied to increasing political unrest and polarization (Walter, 2016). Conversely, of the eight CEE countries studied here, only Hungary and Romania received bailout packages from the IMF, while Slovenia and Slovakia, as parts of the Eurozone, implemented austerity measures in accordance with European Monetary Union guidelines (Santa, 2012;Cankar and Petkovsek, 2013;Walter, 2016).…”

Defining, censuring, and resolving: the EBRD, collective organic intellectuals and the global financial crisis in Eastern Central Europe

“…Equally, Drahokoupil & Myant (2010) have argued that the financial crisis was largely an external shock that affected ECE in different ways. The unfolding crisis in ECE could not be understood as just internal adjustment to an external crisis stimulated by the international financial meltdown in the United States and Western Europe (Walter, 2016). For Hardy, "the large amount of foreign capital that dominates the financial sector in CEE, where this amounted to between 60 per cent and 90 per cent of total assets compared with between 5 per cent and 15 per cent in the UK, US, France and Germany" (Hardy, 2014, p. 151).…”

Policy Responses to Balance-of-Payments Crises: The Role of Elections

“…For example, several recent papers explore the relationship between exchange rates and trade policy (Broz and Werfel 2014;Bown and Crowley 2013;Copelovitch and Pevehouse 2013). In a similar vein, Stefanie Walter explores why some countries devalue their currencies during a balance-ofpayment crisis while others opt for Binternal devaluations^-the combination of high interest rates, fiscal austerity, and structural reforms that seek to regain competitiveness by lowering wage costs and increasing productivity (Walter 2015;Walter 2013). While moving in the right direction, these previous works neglect to consider all the policy instruments that authorities have at their disposal during crises.…”