The Politics of Budgetary Constraints: Understanding the Variation of National Fiscal Frameworks in the Eurozone

Since the early 1990s, both academics and politicians have directed increasing interest toward national fiscal frameworks that consist of fiscal rules and councils. The main goal of these frameworks is to reduce the fiscal policy discretion of governments and parliaments, responding to what is largely perceived to be a “public deficit bias” in fiscal policy making. The Stability and Growth Pact, accompanying the introduction of the Euro, introduced a common supranational fiscal framework layer on top of existing and developing national fiscal frameworks in the Eurozone. Additionally, as a response to the recent European debt crisis, the Fiscal Compact and Six-Pack further obliged member states to implement reinforced fiscal frameworks on the national level. Interestingly, given the high degree of stringency of the common requirements and the supposed preference for fiscal policy discretion among politicians, many Eurozone countries now substantially exceed these obligations. Despite the convergence pressure from the European level, national fiscal framework in the Eurozone continue to display significant differences in their overall discretion constraint on fiscal policy makers. Subsequently, this paper aims at exploring and explaining this variation in the stringency of national fiscal frameworks in the Eurozone. Two broad strands of research provide input for this research project. The literature on public choice, in a theoretical endeavor, has been largely responsible for the identification of a “public deficit bias” and proposed discretion-constraining fiscal frameworks as credible commitment solutions. It has equally, in an empirical manner, provided some evidence for the deficit-reducing effect of fiscal frameworks. The public choice literature, however, struggles to explain why fiscal frameworks get implemented in the first place and what determines their variation. The EU policy implementation literature, on the other hand, has identified several factors that explain the differences in transposition of common requirements among EU member states, but has so far only been partially interested in the issue of variation in “over-implementation” and has ignored the fiscal policy area altogether. Using insights from comparative political economy, I argue that the variation in the stringency of national fiscal frameworks in the Eurozone can be explained by different degrees of what I call preliminarily, the “problematization” of public debt. The stronger the consensus among political decision makers and interest groups that public debt constitutes a “problem”, the more discretion-constraining the implemented national fiscal framework will be. This process can be driven both by ideology and material interests. Two types of ideology conducive for the “problematization” of public debt can be identified: (1) third-way politics focused on competitiveness and (2) neoliberal politics to “shrink the state”. Additionally, in countries with a dominant export sector, interest groups will push for a stability-based approach in fiscal policy making to keep inflation and wage growth low. Starting from a quantitative analysis of the current nineteen Eurozone member states from 1990 to today, the analysis focuses on several qualitative country case studies that draw on interviews with political decision makers, public officials, and experts as well as on qualitative country reports, parliamentary debates, and newspaper articles.