Capitalising on Constraint: Bailout Politics in Eurozone Countries

Dr. Daniel Cardoso

In the last decade, five Eurozone governments in economic difficulty received assistance from international lenders on condition that certain policies specified in the Memoranda of Understanding (MoU’s) were implemented. How did negotiations take place in this context? What room of manoeuvre did the governments of these countries have? After conditionality, to what extent were ministers willing and able to roll back changes imposed on them by the international lenders? Do we find variation across governments, and if so, why?
In this paper, we address those questions. We make two central arguments. First, we argue that executives are capable of extracting policy benefits from a bailout both during and after the process. While conditionality constraints governments, it does not leave them powerless and it sometimes enables them to pass policies that they personally favoured but were previously unable to pass. Also, governments are able to reverse the reforms adopted during the bailout when the programme comes to an end, but they do so very selectively in cases where it brings them more benefits and less costs. Second, we claim that the leverage of governments - and their capacity to extract advantages from the bailout during and after the process - is principally shaped by two variables: the governments’ partisan composition and the bargaining context.
To test our proposals, we rely on the congruence method in combination with process-tracing and on the coding of all-important policies adopted under conditionality. For the qualitative study, we focus mainly on executives’ room of manoeuvre and their motivations for advocating, resisting or shaping the policies passed during and beyond conditionality. Data collection analyses whether the policies passed under conditionality were kept or reverted (and why). Regarding our empirical sources, we triangulate methods of data collection, including the analysis of official documents and the press, and semi-structured interviews with 120 key actors from the government, parliament, interest groups, journalists and the ‘troika’.