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Bailout politics in Eurozone countries

Since 2010, five Eurozone governments in economic difficulty have received assistance from international lenders on condition that certain policies specified in the Memoranda of Understanding were implemented. How did negotiations take place in this context? What room for manoeuvre did the governments of these countries have? After conditionality, to what extent were governments willing and able to roll back changes imposed on them by the international lenders? Do we find variation across governments, and, if so, why?

This book addresses these questions. It explores the constraints on national executives in the five bailed out countries of the Eurozone during and beyond the crisis (2008–2019).

The book’s principal idea is that, despite international market pressure and creditors’ conditionality, governments had some room for manoeuvre during a bailout and were able to advocate, resist, shape or roll back some of the policies demanded by external actors. Under certain circumstances, domestic actors were also able to exploit the constraint of conditionality to their own advantage. The book additionally shows that after a bailout programme governments could use their discretion to reverse measures in order to attain the greatest benefits at a lower cost. It finally explores the determinants of bargaining leverage – and stresses the importance of credibility.

Abstract only
Catherine Moury, Stella Ladi, Daniel Cardoso, and Angie Gago

Since 2010, five Eurozone governments have received financial assistance from the International Monetary Fund and the European Union, on the condition that a long list of policies were implemented. This is often described as a period in which powerless bailed out governments had no choice but to follow the lenders’ prescriptions; and it was contested whether they were in the former’s best interest. The effectiveness and fairness of conditionality have also been put into question. The introduction presents and contextualises these empirical questions and specifies the authors’ methodological choices.

The introduction starts by briefly recalling the context and the main events of the period covered. As individual countries are analysed in depth in the following chapters, this section focuses mainly on the European level. Arguments and methodology choices are then briefly presented before the remaining chapters are described.

in Capitalising on constraint
A theoretical framework
Catherine Moury, Stella Ladi, Daniel Cardoso, and Angie Gago

Chapter 1 presents the theoretical framework underlying the book. Cross-cutting the literature on policy change, bargaining, Europeanisation, enlargement and political economy, this chapter outlines the different constraints and incentives faced by governments during and beyond conditionality. It also specifies the authors’ theoretical expectations regarding variation within and across countries.

in Capitalising on constraint
Abstract only
Catherine Moury, Stella Ladi, Daniel Cardoso, and Angie Gago

Chapter 2 focuses on the Greek case, from the start of the crisis in 2008, during the three successive bailout programmes (2010– 2018), and in the period after the end of the bailout until September 2019. As Greece was the first country to ask for a bailout, this chapter allows us to analyse the negotiations for the creation of the EU rescue mechanism, which were closely related to the first bailout. Given the succession of programmes, the Greek case also permits a comparison between the negotiations and implementation of different Memoranda led by different parties in the same country.

in Capitalising on constraint
Abstract only
Catherine Moury, Stella Ladi, Daniel Cardoso, and Angie Gago

Chapter 3 analyses the financial crisis and its aftermath in Ireland. Given its growth model and the fact that it was already very liberalised when the crisis began, Ireland is interesting and quite different from most of the other countries. However, it bears similarities with Cyprus in that the crisis was largely the result of an oversized and overexposed financial/banking sector and the economy was already very liberalised when the crisis began.

in Capitalising on constraint
Abstract only
Catherine Moury, Stella Ladi, Daniel Cardoso, and Angie Gago

Chapter 4 looks at Portugal, another interesting case as the Memorandum of Understanding was negotiated by the Socialist caretaker government and implemented by its successor from the centre-right – whose preferences were strongly aligned with those of the lenders. After the bailout, a Socialist government was installed with the support of radical left parties, all of which had promised large-scale reversals during the electoral campaign.

in Capitalising on constraint
Abstract only
Catherine Moury, Stella Ladi, Daniel Cardoso, and Angie Gago

Chapter 5 analyses the margin of manoeuvre of Spanish governments during and after the Eurozone crisis. The Spanish case is theoretically interesting because it is the fourth biggest European economy, thus allowing us to consider the importance of the size of the country in the negotiations with external actors. It is also a special case in that the Spanish Memorandum of Understanding only addressed the financial sector.

in Capitalising on constraint
Abstract only
Catherine Moury, Stella Ladi, Daniel Cardoso, and Angie Gago

Chapter 6 focuses on Cyprus, a case which has warranted much less discussion in the literature. This therefore constitutes an important contribution to the understanding of the contagious nature of the Eurozone crisis. Among other things, it sheds light on the conditions that forced the Cypriot government to ask for a bailout and the strain that the Russian factor put in the relationship with the EU. This chapter shows that once the bailout was agreed a different pattern of negotiations emerged, where consensus between the political parties and increased participation of technocrats enabled room for manoeuvre for the Cypriot government.

in Capitalising on constraint
Six things you should know about Eurozone bailouts
Catherine Moury, Stella Ladi, Daniel Cardoso, and Angie Gago

Chapter 7 concludes. We compare countries and their policy fields, and show that our argument ‘travels’ well: even in least likely cases, governments had some leeway to shape the policies adopted under conditionality and to reverse some of these after a bailout. Additionally, we present the comparative results of our database on conditionality and policy reversals during and after conditionality. We finally address the theoretical and policy implications of our findings and discuss their implications for the current economic crisis resulting from the spread of the Coronavirus.

in Capitalising on constraint