The Effects of Crises and the European Union on the Budgetary Institutions of Member States

One of the core questions in governance research is: when and how do institutions change? Given the increasing importance attributed to budgetary institutions in the scholarly discussions and the growing significance of fiscal issues in the European context, it would be insightful to explore whether the European countries have experienced changes in their budgetary institutions during the past decade. The goal of this paper is to explore how the experience of the crisis and the EU-level fiscal governance reforms have influenced budgetary institutions in the member states. Drawing on the literatures of Europeanization, fiscal governance, and public (crisis) management, the paper first outlines a series of propositions about what kinds of shifts and institutional innovations in the budget process we would expect to ensue from the crisis experience and EU-wide reforms. The empirical part of our paper explores the validity of those theoretical conjectures in three different member states: Portugal, Austria, and Finland. The case selection was based on the following reasoning. According to the Europeanization literature, the changes produced by EU rules in the member states depend, inter alia, on the countries’ vulnerability to global as well as European economic forces and the existing legacies. All three countries chosen are small and hence relatively vulnerable. At the same time, they experienced varying degrees of crisis: Portugal went through a deep fiscal crisis, which necessitated the involvement of the Troika, while Austria experienced a moderate fiscal squeeze and Finland an even milder one. They also represent different administrative traditions: Napoleonic (Portugal), Germanic (Austria), and Scandinavian (Finland). The sources of data for the case study countries included semi-structured interviews conducted with public officials (8-12 interviews per country) and policy documents. We find that the more severe the crisis experienced by the country, the more extensive the reforms undertaken in the fiscal domain. Our analysis also finds that the crisis experience and EU-level reforms have led to increased centralization of the budgetary institutions in all three countries. Although we would have expected Austria and Portugal to move closer towards the contracts approach of fiscal governance, this has not happened in practice since the medium-term expenditure frameworks are not viewed as binding. We also find that having to follow the EU fiscal rules has interfered with some institutional innovations adopted at the national level: for example, the experimentation of greater flexibility in budget implementation in Austria had to be stopped in order to comply with the EU rules.