Waltraud Schelkle

Searching Under the Lamp-Post: The Evolution of Fiscal Surveillance

Fiscal surveillance was developed as a supranational regulatory process to counteract short-termism and deficit biases in government decision-making. With effective monetary policy to stabilize the economy, restraint on the fiscal discretion of national governments was seen as the key to macroeconomic stability. The financial crisis and its aftermath challenge this paradigm. Private debt caused the crisis and monetary policy is so weak that pro-cyclical fiscal retrenchment could worsen fiscal outturns. We argue, contrary to the ‘disciplinarian’ interpretation of the Stability and Growth Pact, that the regulatory process of fiscal surveillance is strongly affected by the potential perversities of fiscal restraint and is therefore resistant to the prescription of austerity. This claim is developed by tracing the technical difficulties encountered by fiscal surveillance since the financial crisis. The crisis has so destabilized expectations of the performance of the economy and the proper scope of government that the statistical and economic norms of surveillance have been undermined. We conclude that the problem with fiscal surveillance is not that the EU inflicts undue fiscal discipline on member states, but rather that the EU institutions are unable to protect member states against bond market panic, and therefore cannot coordinate stabilizing fiscal policies.

Collapsing worlds and varieties of welfare capitalism: in search of a new political economy of welfare

The study of welfare capitalism is concerned with a founding question of political economy, namely how capitalism and democracy can be combined. Ever since the publication of Esping-Andersen’s Three Worlds of Welfare Capitalism in 1990, the answer was sought in identifying ideal types of welfare states that support a class compromise. The Varieties of (Welfare) Capitalism literature is increasingly used as a complementary theory of production systems although its rationale for social policies is largely incompatible with the Worlds typology. This article argues, first, that popular regime typologies have degenerated as a research programme, notwithstanding their many achievements. The main reason for this lies in a simplistic notion of the relationship between politics and economics in modern society. Secondly, the article outlines an alternative for analysing welfare provisions and their evolution, drawing on insights of the new politics and the new economics of welfare. This framework can give a systematic account of welfare program restructuring that undermines regime typologies. It suggests a different question for the political economy of welfare, namely how capitalism and democracy can be kept distinct.

A Crisis of What? Mortgage Credit Markets and the Social Policy of Promoting Homeownership in the United States and in Europe

The crisis of 2007-09 was prefigured by bubbles in the housing and mortgage credit markets of major Organisation for Economic Co-operation and Development (OECD) countries. A comparison of the United States, the United Kingdom, and France reveals that, contrary to popular perception, the two European countries had a bigger housing price bubble, more volatility, and a more short-termist mortgage market. Yet, the fallout of the crisis—in terms of overindebtedness of mortgage holders, foreclosures of homes, and the extent to which the “nest-eggs” of households were devalued—has been worse in the United States. This article explores which differences in the use of credit markets for the social policy of promoting homeownership can account for this puzzling finding.

The Pact is Dead: Long Live the Pact

The ECOFIN Council decision of November 2003 that noted the existence of ‘excessive deficits’ in France and Germany but did not impose sanctions on these two governments was widely interpreted as sounding the death-knell for the Stability and Growth Pact. A ruling by the European Court of Justice on 13 July 2004 annulled this decision, paving the way for reform of fiscal policy coordination in the Euro Area. This article examines what caused the difficulties that have arisen, reviews and appraises a range of proposals for reform of EMU’s fiscal policy rules and suggests a way forward.

What difference does Euro membership make to stabilization? The political economy of international monetary systems revisited

ABSTRACT For many political economists, the loss of monetary sovereignty is the major reason why the Southern periphery fared so badly in the Euro area crisis. Monetary sovereignty here means the ability of the central bank to devalue the exchange rate or to buy government debt by printing the domestic currency. We explore this diagnosis by comparing three countries – Hungary, Latvia and Greece – that received considerable amounts of external assistance under different monetary regimes. The evidence does not suggest that monetary sovereignty helped Hungary and Latvia to stabilize their economies. Rather, cooperation and external assistance made foreign banks share in the costs of stabilization. By contrast, the provision of liquidity by the European Central Bank inadvertently facilitated the reduction of foreign banks’ exposure to Greece which left the Greek sovereign even more exposed. By viewing the Euro area as a monetary system rather than an incomplete state, we see that what is needed for Euro area stabilization is cooperation over banking union, rather than a fully-fledged federal budget.

The Politics of Conflict Management in EU Regulation

This article examines how the conflicts latent in EU regulation are managed. First, it looks at how policy issues are framed as positive-sum games, party-political arenas avoided and consensual problem-solving methods of policy-making promoted. Then it addresses the puzzle of the robustness of regulatory conflict management. If challenged in its regulatory endeavour, the EU tends to respond with more regulation. Finally, the article outlines the limitations of regulatory conflict management which are to be found less in outright deadlock than in attenuation of processes, loss of focus, information overload and a tendency to solve small problems while neglecting large ones.

In the Spotlight of Crisis How Social Policies Create, Correct, and Compensate Financial Markets

This special issue of Politics & Society explores the relationship between social policy and financial markets, which was thrown into sharp relief by the financial crisis of 2007-09. The research asks how particular social policies underpin and even create financial markets, specifically mass markets for consumer finance, mortgages, and pensions.

Monetary integration in crisis: how well do existing theories explain the predicament of EMU?

Three theories or rationales can be invoked to explain the formation of the monetary union as well as its policy architecture. One sees its rationale as forming an optimal currency area, another as making macroeconomic policies credibly stability-oriented and a last one as overcoming collective action problems of mutually beneficial policy coordination. Each theory also implies an explanation for why the euro area is in crisis now. The article contains a critical assessment of these theories, with a view to how they have informed crisis management of the euro area but have also failed so far to stabilize the monetary union effectively.

How will EMU affect cohesion

The new policy environment of EMU affects economic, political and social cohesion in different ways: the policy mix and menu will be reconfigured; it will provide for more macroeconomic stability in cohesion countries; economic competition will intensify and change patterns of specialisation; and comparison of living standards will become easier, which puts pressure on policymakers to reduce inequalities. This article assesses the significance of these effects and their likely consequences in the short, medium and long run. Then the salient cohesion issues as regards eastern enlargement are discussed. Finally, policy conclusions are drawn, mindful of the considerable uncertainties that warrant further research.

The policy consensus ruling European political economy: the political attractions of discredited economics

Abstract Since the Great Recession in 2008 academic economics has come under heavy criticism. But a straightforward alternative is not in sight either. We analyse in this article how the major flaws of applied economics are the mirror image of its attractions to policymakers, mainstream political parties and reform-minded administrations. We first assess what the consensus until recently has been and how it could have been implicated in the crisis. Secondly, we argue, following Hall, that the policy consensus continues to persist because it is politically attractive. The article ends with observations of how the management of the Euro area crisis still shows the attractiveness of the consensus. Policy recommendations: •  Introduce greater pluralism in advisory bodies on economic policy to include civil society organizations, such as trade unions, and consumer organizations as well as academic disciplines other than economics. •  Review compensation policy for representatives on advisory committees to create a level playing field for experts from civil society organizations and independent consultants with financial sector lobbyists. •  Support and back up critical voices in the financial industry and in regulatory bodies against those who defend regulatory neglect and the privilege of rent-seeking for the financial industry.