Aidan Regan

European Monetary Integration and the Incompatibility of National Varieties of Capitalism

The Varieties of Capitalism literature offers two competing hypotheses on institutional resilience. One argues that globalization promotes convergence towards a neo‐liberal system. Another stipulates that diverse capitalist regimes promote different comparative advantages, enabling diverse political economies to co‐exist. In this article, we argue that the compatibility of diverse models of capitalism is contingent upon monetary regime. We examine how different currency regimes influence the mutual co‐existence of export‐led growth models (euro core) and domestic demand‐led growth models (euro periphery). Under EMU, we find that these two models have become increasing incompatible, as unsustainable divergences in external balances have emerged between them. We hypothesize that external imbalances between these two growth regimes did not emerge prior to EMU because of the presence of two inflation adjustment mechanisms in the real exchange rate; the nominal exchange rate (in soft currency regimes) and national central banks’ promotion of inflation convergence (in hard currency regimes).

The Political Economy of Social Pacts in the EMU: Irish Liberal Market Corporatism in Crisis

The economic crisis is a collective action problem. In the absence of currency devaluations, eurozone governments are faced with the painful social process of wage devaluations. This paper examines the strategic choices facing the government and organised labour in how they respond to this problem. It will argue that the European Monetary Union contains an implicit neoclassical assumption that labour markets will automatically adjust to downward wage flexibility. This ignores the politics of collective bargaining. Labour relations systems are the most regulated of all markets. Based on this institutional embeddedness, the paper will outline a typology of political choices facing national governments: neoliberal market adjustment, national or sectoral concertation and euro-coordination. Institutional pre-conditions of collective bargaining mediate what strategy governments adopt. It will subsequently examine the case of Ireland that tried and failed to negotiate a national pact in 2009. Social partnership was a central institution of Irelands political economy for 20 years but could not internalise the adjustment constraints of the current crisis. The voluntary and exclusive nature of Irelands corporatist wage pacts weakened the power resources of labour and enabled the government to pursue a neoliberal strategy of adjustment. As an institution, it was dependent upon the political executive of the state.

Taming Global Finance in an Age of Capital? Wage-Setting Institutions' Mitigating Effects on Housing Bubbles

Analyses in international political economy (IPE) identify interest rate convergence, magnified in the process of European monetary integration, and financial market liberalization as causal factors behind the rise of house prices. Despite these common credit supply shocks, developed economies experienced heterogeneous trends in housing inflation throughout the 1990s and 2000s. Turning towards demand determinants of housing prices, we focus on whether wage-setting institutions blunt financial liberalization’s impact on housing inflation via their restraining effect on incomes. Employing both a panel regression analysis and a structured comparison of housing developments in Ireland and the Netherlands, we uncover two findings. First, income growth is a more important predictor of housing bubbles across OECD economies than financial variables (although income’s impact on house prices is severely mitigated for the United States). Second, countries with coordinated labor market institutions that grant political coalitions in the export sector veto powers over non-tradable sector interests, realize more restrained income growth and, in turn, are less prone to housing bubbles.

Does discourse matter in the formation and consolidation of social pacts? Social partnership and labor market policy in Ireland

This paper will argue that the creation of a coordinating policy discourse is a key explanatory variable for the emergence and consolidation of social pacts in labor relations. The paper will highlight the limit of functionalist accounts that only focus upon macro-exogenous forces such as European Monetary Union (EMU) entry (or macroeconomic crisis) for inducing the emergence of social pacting. These accounts, whilst necessary, cannot sufficiently explain the continued institutionalisation of social pacts after EMU entry in EU member states (or the passing of an economic crisis). The paper will also highlight the limit of micro-endogenous accounts that only focus upon the organisational politics of trade unions, employers and government. There is a need to integrate both the structural (macro) and actor (micro) centred approaches to fully explain why conflicting economic actors institutionalise concertation strategies in the form of social pacts. It is my argument that focusing upon the tri-partite economic and social councils that enable the discursive-interaction of actors in the policy making process is an essential variable in trying to explain the success or failure of social partnership agreements. To make this argument I will use the evolution liberal corporatism in Ireland as a case study. Tri-partite public policy forums enabled the state to facilitate discursive interaction amongst organised interests on the need for coordinated collective action. Social pacts, in this regard, increase the strategic capacity of the state to manage the public policy process.

Political tensions in Euro-varieties of capitalism : the crisis of the democratic state in Europe

The European response to the financial cum fiscal crisis in the Eurozone is leading to a democratic crisis of the state. It has exposed a tension between the national and the supranational in a multi-level polity whilst opening up new political cleavages between the core and periphery of Europe. This dilemma has become particularly acute for program countries that are either directly or indirectly in receipt of non-market financial funding from the Troika. In the absence of exchange rate adjustments, Ireland and Southern European countries must pursue an internal devaluation that shifts the entire burden of adjustment on to fiscal and labor market policy. National governments, regardless of political partisanship, are required to comply with external EMU mandates and liberalize their welfare state, cut public spending and impose market conforming structural reforms. The core argument of this paper is that imposing a one size-fits-all neoliberal solution to diverse economic problems across different varieties of capitalism is the real source of the Eurozone crisis. Using a cross-country comparative analysis of Greece, Ireland, Italy, Portugal and Spain I conclude that this is an outcome of inbuilt institutional and macroeconomic asymmetries in the EMU. But it is leading to unprecedented electoral volatility and a legitimation crisis of the democratic state in Southern Europe.

Global Finance, Labor Politics, and the Political Economy of Housing Prices

International political economy identifies declining nominal interest rates, securitization, and financial liberalization as drivers of rising housing prices. Despite witnessing these common credit shocks, however, developed economies experienced divergent trends in housing inflation since the 1980s. We offer a comparative political economy explanation of variation in house prices, arguing that by restraining household incomes, wage-setting institutions can blunt financial liberalization’s inflationary impact on housing markets. Employing quantitative analysis and a comparative study of Ireland and the Netherlands, we uncover two findings. First, countries where political coalitions in the export sector held veto powers over those in the nontraded sector in national wage setting realized lower housing inflation. Second, the impact of sectoral coalitions on housing prices in OECD countries is similar to that of financial variables. Our results suggest that the organization of labor politics continues to play an important role in mitigating the destabilizing effects of global finance on developed economies.

The Politics of Capitalist Diversity in Europe: Explaining Ireland’s Divergent Recovery from the Euro Crisis

The 2008 financial crisis hit few places harder than the Euro periphery. Faced with high levels of public debt, Portugal, Italy, Ireland, Greece, and Spain were each compelled to implement harsh austerity reforms. Yet despite this common policy response, the recoveries have shown significant divergence. In particular, Ireland seems to have managed to succeed economically in a way that the other peripheral countries have not. The prevailing narrative is that Ireland’s recovery from the crisis is due to “austerity” and improved “cost competitiveness.” Drawing upon theories from the study of comparative capitalism we challenge this narrative, and argue that the Irish recovery is an outcome of a state-led enterprise policy aimed at nurturing a close relationship with corporate firms from Silicon Valley. Using qualitative and quantitative investigation we find evidence that this state-led FDI growth model, rather than austerity induced competitiveness, kick-started Ireland’s recovery from crisis. As Ireland is a critical case for the “success” story of austerity in Europe, our findings represent a significant challenge to the politics of adjustment. It suggests the strategies of business-state elites, and not simply the workings of electoral coalitions, explains the politics of adjustment in advanced capitalism.

Introduction: Is the European Union Capable of Integrating Diverse Models of Capitalism?

ABSTRACT The causes and consequences of the Euro crisis have led comparative political economy scholars to question whether European integration can accommodate diverse models of capitalism. This special issue addresses two important questions about the compatibility of diverse growth models within the European Union (EU): Are some growth regimes better suited to European integration than others? and does the EU favour a particular constellation of domestic institutions? Contributions within this special issue provide a qualified yes to these questions, concluding that the EU favours export-led growth models whilst it penalises and discourages domestic consumption-oriented growth paths, particularly those that are financed by debt accumulation. While recent comparative capitalism literature highlights that European monetary integration has favoured export-led growth regimes, contributions in this special issue outline that the EU’s prioritisation of export-led growth over domestic demand-led growth is present in other facets of integration, including EU accession, financial integration, the free movement of people, fiscal governance and the Europe 2020 growth strategy. Findings here provide important insights for both the European integration and comparative capitalism literature, highlighting that the unique economic ties being forged within the European project may be problematic for those countries outside northwestern Europe and for workers in low-wage domestic sectors.

Celtic phoenix or leprechaun economics? The politics of an FDI led growth model in Europe

ABSTRACT In this paper, we argue that Ireland’s post-crisis economic recovery in Europe was driven by foreign direct investment (FDI) from Silicon Valley, and while this growth model was made possible by Ireland’s low-corporate tax rates, it was also a result of these firms using Ireland to directly access the European labour market. We evidence this contention via sectoral and geographic analyses while simultaneously showing that Irish fiscal policies have not redistributed gains from the recovery to the broader population. As a result, the economic recovery has been most actively felt by those in the FDI sectors, including workers from the EU and beyond. Building on theories from the study of comparative capitalism, we suggest that this experience indicates that Ireland’s FDI-led growth model has created clear winners and losers, with significant distributional implications. The FDI growth regime been made possible by inward migration and European integration, but given the unequal distribution of the economic benefits that this generates, it is unlikely to be politically, or electorally, sustainable.

Rethinking social pacts in Europe: Prime ministerial power in Ireland and Italy:

In Ireland and Southern European countries, social pacts were widely seen as a mechanism to mobilize broad support for weak governments to legitimate difficult reforms in the context of monetary integration. I retrace the politics of these pacts in Ireland and Italy to argue that it was less the condition of ‘weak government’ that enabled the negotiation of tripartite pacts, than the intervention of a ‘strong executive’: the prime minister’s office. Social pacts were pursued as a political strategy to enhance prime ministerial executive autonomy. In the aftermath of the euro crisis, this means of enhancing executive autonomy has been replaced by the negotiation of grand coalition governments, with the exclusion of unions; but this continues the trend towards the prime ministerialization of politics.