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Policy-Making Under the Troika: Labor Market Reforms in the PIIGS States – Introduction

0 Comments 🕔08.Aug 2016

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This article is part of our feature Policy-Making Under the Troika.

by Chiara Benassi

The financial and housing crisis in 2008 harshly hit the Eurozone, and in particular the Eurozone periphery. While the public debate initially pointed at the banks and deregulated financial markets as responsible for the crisis, the focus quickly shifted to the PI(I)GS states. Portugal, Ireland, Italy, Greece, and Spain were heavily criticized for their slacking economic performance, high inflation, and high public debt, which allegedly undermined the financial stability of the Eurozone (Brazys and Reagan 2016; Hopkin 2013).

Portugal, Ireland, Greece, and Spain required a bail out from the European Commission (EC), the European Central Bank (ECB), and the International Monetary Fund (IMF)—the so-called Troika institutions—while Italy required the financial assistance of the ECB through the purchase of government’s bonds. In exchange, all countries committed to broad and extensive economic and fiscal reforms, either by signing a Memorandum of Understanding (Ireland, Greece, and Portugal) or through softer and implicit conditionality (Italy and Spain). The reforms the PIIGS states had to implement neglected the institutional variety across the five countries, sharing the same intent and containing the same recipes. These included measures aimed at reducing public spending, lowering labor costs, and increasing labor market flexibility.

The following articles look in particular at the reforms in the arena of labor market and industrial relations, showing important cross-national differences and similarities. The Irish case stands out due to the recentralization of collective bargaining (at least in the public sector), the increase of the minimum wage, and the partial reregulation of the labor market, which followed domestic political dynamics mostly independent from the Troika. Furthermore, Reagan argues that the economic recovery is similarly independent from the austerity measures, as the driver is the US MNC sector, which has always benefited from the labor market flexibility (existing before the Troika), and pays salaries higher than the national average, sustaining internal consumption. This explanation of Irish recovery is at odds with the dominant narrative, taking Ireland as evidence that austerity works, using the country as a model to the other PIIGS states. Indeed, the reforms implemented there are strikingly similar not only in terms of the neoliberal content, as noted above, but also in terms of the political dynamics underlying them. Left-wing governments, which traditionally should ideologically oppose austerity, have participated or even led the implementation of structural reforms, marginalized their traditional ally, the labor movement, and therefore faced (and practically ignored) strikes and demonstration. This certainly is suggestive of the enormous pressure the Troika has put upon national governments since the crisis. With the exception of the Ireland’s case, all articles seem to envisage rather gloomy future prospects, with high unemployment rates and migration rates (especially among young people), and rising overall employment precariousness.

 

Chiara Benassi is a Lecturer in Human Resource Management in the School of Management at Royal Holloway, University of London.

This article is part of our feature Policy-Making Under the Troika.


References

Brazys, S. and Reagan, A. “These Little PIIGS Went to Market: Austerity and Divergent Recovery in the Eurozone,” Geary Working Paper 2015/17, University College Dublin. (2016).

 

Hopkin, J. “The Trouble with Economic Reform. Understanding the Debt Crisis in Spain and Italy,” in Panizza, F. and Philip, G. (eds), Moments of Truth: The Politics of Financial Crises in Comparative Perspective, London: Routledge,140-58. (2013).

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